Passing The Buck To Our Kids

Passing the buck to our kids has become the American way of doing things. We elect and reelect people to our federal government who continually pass programs  for which our taxes are insufficient to pay the cost. In this manner, the United States has accumulated, in the name of future generations of Americans (our kids) a debt that is now $16 trillion and growing at over a trillion dollars each year. The left likes to tell us not to worry because we never have to pay off the  debt, as long as, we pay the debt service cost (interest) each year. But, what they don’t tell the public is that even at the low-interest rates our bonds carry right now, the annual debt service cost is over $400 billion and growing as the principle keeps growing.

Well, our federal government has been setting a very bad example for our states and our cities. California is a good case in point. If my memory serves me correctly, California is now $16 billion in debt and counting. Cities in California are falling like dominoes into bankruptcy. Future generations (the kids) will pay the price of this foolishness one way or the other. And now, it seems that some California school districts have found a way to pass the buck to the kids.

Typically in America, we fund our public schools through our property taxes. When an extraordinary cost is foreseen, the appropriate government entity will ask the voters to pass a bond issue. If the voters approve the bond issue they are committing to pay some millage rate increase in their taxes for a fixed number of years. The government entity then collects the increased taxes and uses it to pay off the bonds (loan) in the time frame specified. The total cost to the taxpayer over that time (principal plus interest) is typically two to three times the amount borrowed. It’s a pay as you go approach. According to the Voice of San Diego, some school districts have found a way to borrow money such that  the kids get to help pay the money back. Let me explain how it works.

There is a type of bond called Capital Appreciation Bond, where by, public entities can borrow money today but not have to start paying it back for say twenty years and they have another twenty years to pay  the loan after that. The link above gives a couple of examples. One is the Poway Unified school district in the San Diego area.

…Poway Unified borrowed $105 million last year using a form of financing called a capital appreciation bond. The district won’t start making payments on the loan until 2033, and by the time it’s paid off in 2051, taxpayers will have paid back almost $1 billion, or almost 10 times the original loan.

Isn’t this great? Poway will borrow and spend $105 million today and way down the road the taxpayers will pack back over a bullion dollars. Do you see how clever this is? The children whom will benefit from this school bond will have graduated highschool and possibly college by the time the bond repayments begin. So, the children get to help  their parents and grandparents repay the loan.

I’m trying to imagine a conversation between a daddy and his little boy. It might go something like this: (You van assume the little boy interrupts his father several times with “Yes, daddy”.)

Daddy: Son, we need to have a man-to-man talk. You know that your mommy and daddy love you very much, don’t you? All parents and grandparents love their children and grandchildren. Well, you’re  a big boy now. You are going to start kindergarten in a few months. And, because everyone loves children, we all want you kids to have really nice schools. And, we want your teachers and pricipals and all the school staff to be to be paid really well and we want them to be able to retire early with big fat pensions and have the very best health insurance. That’s only fair, don’t you think? So, all the parents and grandparents in our area have voted to have the school district borrow a bunch of money to pay for all that good stuff needed for your education. Well, here’s the thing, son. We parents and grandparents don’t want to spend our money now to pay back that loan. No, we have other things we want to buy with our money now. So, we all think that when you kids are out of school and college, you can help us pay back the loan. It’s only fair. After all, it is you kids who are getting the education. Well, actually you won’t be learning very much that is useful and you probably won’t be able to get a good paying job. But, not to worry, son. We have a federal government way off in a place called Washington D.C. and they are going to take care of you. Do you understand everything I’ve told you, son?

Little boy: Yes, daddy. I love you, daddy.

Daddy: I love you too, son.

Well, that sounds like some “tough love”, don’t you think? But, we Americans have been practicing that kind of tough love with our children for years at the national, state, and city level. Now the school districts are learning to do the same thing. But hey!. As the liberals are always saying: It’s for the children. They deserve it! What is it exactly that our children deserve? Getting stuck with the bill? Will we ever learn? I doubt it.

Well, that’s what I’m thinking. What are your thoughts?