Yes, No Tax Increase Bonds Increase Your Taxes
Its spring election season and across the country citizens will be heading to the polls to vote in municipal elections. In my community, in addition to trying to narrow down a field of mayoral candidates and electing school board members, we will also vote on what is being billed as a “no tax increase bond” issuance for our local school district.
Like many terms in politics, putting “no tax increase” in front of “bonds” is supposed to blunt the opposition to new taxes. But let’s be clear, there is no special category of bonds that school districts issue that doesn’t increase your taxes. No tax increase bonds increase your taxes.
How? School districts regularly issue bonds to finance capital improvements like building new buildings or renovating existing infrastructure. Taxpayers pay off those bonds over time, usually via an increase to their property taxes. Bonds are issued for a specific period, and when they are paid off, taxpayers tax bills go down.
Enter no tax increase bonds. When a school district finds itself on the tail end of a bond payoff period, it realizes that it can borrow more money without taxpayers paying more than they currently are. They simply tack more bonds on and add more years of payment. Everyone’s taxes stay the same and the school district gets more money. (Here is a great video walking through how it works.)
But do you see the problem? No tax increase bonds actually do increase your taxes. If the district didn’t issue new bonds after paying off the existing ones, your tax bill would go down. But it doesn’t. That is a tax increase.
I understand that this might seem like a trivial matter, but it is a problem, for three reasons.
First, it is not honest. Honesty is in short supply in contemporary politics, but our school leaders should be better than this. If they want more money for a new high school, a new science lab or a new football stadium, they have an obligation to be transparent with the people they are asking to pay for it. Playing a shell game or deflecting the true cost erodes the trust between the community and schools.
Second, it thwarts oversight, transparency and accountability. School district bond elections have the potential to be some of the clearest and most transparent elections we have in America. The district usually has a well-articulated plan for that they are hoping to do, and community members get to decide whether it is worth it. When I see a proposed bond issuance or tax levy increase, I look up the enrollment of the district. Is it growing? Do they need a new building? I look with my own eyes at the plans for new facilities and make a judgment as to whether they are appropriate or extravagant. I can even look at existing debt loads and tax levy rates and compare them to neighboring districts. Are we spending more than them, less than them or about the same? As a result, I can make an informed decision. But when districts are simply tacking on more years of spending, they often use general language about the allowable uses of these dollars. There are no clear plans. It is hiding the ball.
Finally, it undermines the fundamental truth that the things that we want cost money. If we want to build a new high school in our community, it is going to cost money. We need to pay for it out of our taxes. If it is worth it, we should do it, but we should do so knowing that we are going to be paying for it. By pretending like we’re getting something for nothing, folks can start to think that we don’t have to pay for the things that we want. That is wrong. We should never forget that we have to pay for what we want.
The Chinese philosopher Confucius argues in The Analects, “If names be not correct, language is not in accordance with the truth of things. If language be not in accordance with the truth of things, affairs cannot be carried on to success.” This idea is so important, he argues, that the first order of a new leader is to “rectify names.” That is, to make sure that things are called what they are supposed to be called.
It is important for us to debate whether new spending is worth it. Muddying the water with terms like “no tax increase” makes that very hard to do. That’s a shame, and without rectifying the name, the affairs of schooling cannot be carried on to success.