A matter of trust

Like many young people whose paychecks don’t leave all that much to invest, the economic meltdown of the past few weeks has been something of an education for me about how our financial sector actually works (or doesn’t work).

Did you know that market volatility has been costing Pasadena taxpayers tens of thousands of dollars each week?

As City Treasurer Vic Erganian explained last week (then re-explained this week with the help of city Finance Director Steve Mermell), investor panic has forced the city to pay higher interest rates on some of its bond indebtedness.

Because spooked investors want to be able to move their money at a moment’s notice, investment firms are less than eager to carry municipal bonds, which require five days to redeem. This means the city has to offer a higher interest rate to attract buyers.

In the case of the city’s outstanding $45.2 million variable-rate debt for the 2006 Rose Bowl bond, market insecurity has bumped interest rates (adjusted each week) from about 1.25 percent in August to roughly 4.25 percent on Sept. 17, then 8.5 percent on Sept. 24, and back down to about 4 percent at the start of this month. In real money, the initial 3 percent jump cost taxpayers about $22,000 per week.

So what does all this mean for Measure TT, the $350 million public schools improvement bond that Pasadena voters will decide on Nov. 4?

Not much, according to Pasadena Board of Education President Tom Selinske and PUSD Chief of Staff Stephen Brinkman. Both said Monday that the bond will have a fixed interest rate and be issued in three or four phases, the first of which shouldn’t go out on the market until next year, or later at the board’s discretion.

“We won’t go out there in a bad market and hammer bonds that end up on a bad tax rate,” promised Brinkman, who explained that many months of preparation and planning will be done before any projects begin.

If interest rates remain high, however, the district’s estimate of what borrowing $350 million will cost area property owners over some three decades — about $44.63 per year for each $100,000 of a home’s assessed value — could spike to as high as $60 per year per $100,000, but no higher, said Brinkman.

In 2000, California voters approved Proposition 39, which, in exchange for lowering the school bond approval requirement from two-thirds to 55 percent of the vote, capped annual assessments per bond at the $60 level (a $210 annual assessment on a $350,000 home).

But what will we get for that money?

While Selinske and others have been very clear about the need to repair and improve aging public schools and provide a lengthy list of potential projects (board members were expected to approve their enormous Facilities Master Plan this week), the district would not be settling on which projects to actually fund until months after the bond is approved, assuming it is.

One case in point: water meters.

Schools critic Rene Amy recently posted a challenge on his Greatschools Internet list serve — $100 toward passing the bond in the name of whoever could explain why the district had identified the installation of separate meters for fire suppression, irrigation and indoor use at several school sites as a high-priority project.

Pasadena Chamber of Commerce President and former City Councilman Paul Little took on the task, offering that different meters could allow the district to both go green and save money by using recycled water and avoiding some sewer charges — a methodology Selinske confirmed Monday for this newspaper.

But Amy asked for evidence of any real savings, arguing the cost of installing new meters would probably outweigh any sewer-charge reduction, and so a dozen emails later it was clear Amy wouldn’t be paying up.

Brinkman’s response to this newspaper seems to make Amy’s initial point: “There’s no blanket answer,” he said, explaining that whether the district pursues this or any other project would be determined by feasibility studies during the three months after passage of the bond. “There isn’t anybody who has all those answers when they go out for a bond.”

So, Rene — could we settle for a beer?