Letter: Interest rate hikes make bond unfeasible

Published 2:28 pm Monday, April 11, 2022

Tom Downer did an excellent job of explaining potential costs of the proposed school bond in his March 30 letter. Here are some additional considerations:

Left unstated and unknown is the cost of issuing these bonds, which includes developing the prospectus language that details the interest rate and schedule. Given the Federal Reserve is planning six more rate increases this year, the bond coupon rate will have to be attractive enough for investors to buy at par. If not, they will be sold at a discount.

A quarter point increase was made in March. Six more of the same would add 1.5 percentage points to the discount rate charged to banks to borrow. I strongly suspect that one-half point increases are coming soon. Existing bonds will be worth less, and future bond issues will command a higher rate.

The scope of this bond proposal is too ambitious and too costly for property owners to absorb. Any proposed spending should be concentrated on replacing and fixing structures that are unsafe and/or in need of major repairs.

Bond supporters need to reevaluate their priorities. If it ain’t broke, don’t fix it. Vote no on this plan.

LEE CARTER

Ocean Park