The Long and the Short of It

Or, Don’t Use Your Credit Card to Buy Groceries

(and Don’t use Bonds to Buy Technology)

Photo Credit:

Photo Credit:

I was walking by Fort Point in San Francisco (you’ll know the spot from Hitchcock’s “Vertigo”).  I fell into conversation with a guy who, by coincidence, was a new customer at the bank where I worked.  He went on to explain that he used to have an inventory line of credit at another bank.  He then drew on the line of credit to buy the warehouse he was renting.  He was immediately told to go out and get financing elsewhere, pay off his loan, and don’t let the door hit him in the back on the way out.  He was able to find a friendlier loan officer at our bank and moved all his accounts over.

His problem? The loan and the asset didn’t to match.  What he needed was a mortgage.  The warehouse purchase did not match financing that had to be paid off in less than a year.

The opposite problem is true for financing technology for schools.  Districts have limited options to raise funds.  Proposition 39 allows California school districts to issue bonds for the purchase of technology.  But bonds are long term debt instruments and the lifespan of computers and other devices is relatively short.  In fact, at most districts computers are accounted for as non-capitalized equipment (i.e. supplies) due to cost and lifespan.  Funding such non-assets with long term debt is like buying your groceries with a credit card.  Unless you are doing it for the points and pay off the card every month, you are in trouble.

CASBO has posted a video by Dale Scott and Company that outlines the various problems with bonds used for technology and describes a proprietary (?) method of issuing short term bonds (3 – 4 years) to match the life of the asset.  I’m not sure how the length of a bond issue can be proprietary, but, oh well.  The video is only 12 minutes and worth a watch, although it is really nothing more than a plug for the company.

The real problem is that bonds are just not the correct vehicle for purchasing technology under any circumstances.  The reason they are used at all is that it is almost the only way that a California school district can obtain additional taxpayer funds.  In other states one would hope that a tax override could be obtained to fund such needs.  Yet, a similar approach can be pursued in California as well.

Instead of issuing technology bonds, it would be more of a match to put a technology-only parcel tax on the ballot (which is the only other way to get additional funding from tax overrides).  A parcel tax devoted to a technology “refresh” program has a good chance of passage, even given the current two thirds “yes” requirement.  Why?  Because most people support technology in schools.

The tax would be devoted to one activity and therefore could be easily explained and easily audited.  There are no issuance fees and no interest payments.  Money not spent immediately can earn interest that is not subject to federal arbitrage payments.  A tax of something less than $50 per parcel per year would probably supply ample funds.  Instead of lobbying for a lower threshold for passing all parcel taxes, I believe a 50% or 55% threshold could be fairly easily enacted if it were for technology only.  I urge districts and lobbyists to push for this legislative change.  With the advent of the common core and the requirement for students to take tests on line, many districts face urgent needs for both devices and infrastructure.

Just one problem.  If any more districts roll out devices for students the way LA Unified did, we’re all in trouble.

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