What’s the effective interest rate on these bonds?
A comment in the other thread cited 8% and that seems to be consistent with my back-of-the-envelope calculations (don’t have the precise numbers, but we can make a reasonable estimate.)
It’s a 40 year bond, folks. 8% may be above current market rate for a bond with these characteristics, but it’s really not that outrageous, and not outside historical norms at all. It is by no means a recipe for fiscal disaster.
Perhaps the outrage should be that Piggs don’t seem to understand how long-term compounded interest adds up….[/quote]
Harvey, They are not making payments for the first 20 years and then:
“Apart from its overall cost, there’s another reason why Poway’s massive capital appreciation bond should matter to taxpayers.
In 20 years, the school district will be on the hook for its first payment towards last year’s loan. That payment will be a little more than $30 million, $24 million of which is interest.
The following year, the payment will balloon to almost $47 million. And, for the next 18 years after that, until 2051, district taxpayers will have to pay about $50 million every year towards the debt — essentially paying off their initial loan every two years for the next two decades”
The school district now receives $11 million a year from property taxes to pay their bonds.
