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Anti Lake Washington School District bond group using the wrong math | Letter
The anti Lake Washington School District group is to be credited with raising our collective curiosity about how public projects are financed. Education is a lifelong process and this is a great opportunity to teach. Unfortunately they have done a disservice to the community by using the wrong math to mislead people and scare retirees. The April 11 Seattle Times article cleared up a lot of this saying, “neither figure is wrong per se. They’re just measuring different things,” but the anti-LWSD campaign has ignored this and in its April 12 editorial it crossed the line by abusing math to sow mistrust. I finally invested several hours looking into the math and would like to share it with readers.
Let’s think about a home mortgage. Most homeowners have a mortgage with a fixed payment each month. Many also realize that this fixed payment is broken down into principal and interest. What many homeowners don’t understand is that you can’t just multiply your first year principal or interest "X" years to calculate the total. The first year your monthly payment may be going entirely to interest, then it slowly shifts to half principal – half interest, and by the end you’re paying almost all your payment to principal. This process is called amortization.
The district explains on its website that this bond is similarly designed to provide a relatively stable annual payment for taxpayers. Not only is it an amortization of principal and interest, more importantly it’s an amortization of old approved bonds and new proposed bonds. Similar to your mortgage, the first years the bond payments go largely to pay off old debt, then it shifts, and by the end you’re paying entirely the new debt.
Mike Nykreim proposed a simple word problem to take the first year’s payments and multiply by the years and can’t figure out why it doesn’t add to $404 million. Unfortunately, that’s the wrong math to use. He’s taking the first year of the amortization when the portion of your tax payment goes largely to the old debt. You must instead do the math each year independently looking at the portion going to old and new debt. This process is far too complex for most people and requires a spreadsheet, but LWSD has gone above and beyond and actually published that amortization schedule spreadsheet on their website. I took that spreadsheet and then multiplied each year as suggested using the right numbers and verified that the total is approximately $400 million.
Steven Swedenborg similarly attempts to calculate interest with a single calculation multiplied by 20, again failing to take amortization into account. Every year the principal balance decreases and so does the interest. The $404 million includes interest. There is no additional $210 million in interest. He’s trying to add a mis-calculated interest twice.
The anti-LWSD campaign actually understands that the new bond rate varies and published it on their website, but they decided to omit the full chart from the LWSD website showing the old bonds.
The anti-LWSD campaign makes an incorrect statement on the voters ballot saying, “$450 per year on $500,000 home’s taxes, on top of $660 per year for existing school bonds.” This is wrong. Yes, in 2014 old bonds will cost $655 per year. No, the new bonds will never add $450 on top of that. Due to amortization the maximum increase of the new bonds in 2021 will be $385 per year, not $450, but the old bonds will have decreased by $265 per year for a net increase of $120 per year, nowhere near $450. Not only is the $125 per year accurate, it’s actually the worst rate. Again, thanks to amortization, in eight years the difference from what you pay today drops to just $5 per year to $670, and in 16 years it drops to $285 below today’s cost.
To be fair, the anti-LWSD campaign has correctly pointed out that the $125 increase changes throughout the 22 years. In fact, the average increase in cost during the 22 years is $305 per year but decreases in old bonds will offset those costs so that you’ll never see more than $125 per year and most years less than that. We will be paying seven more years. Yes, there are other taxes we pay, and we will have the chance to vote on future bonds. These are all fair and accurate arguments. The anti-LWSD campaign crosses the line when Mr. Nykreim doesn’t use amortization tables to calculate balances, and Mr. Swedenborg miscalculates and then double-adds the interest. Let’s not call LWSD’s integrity into question by abusing math. This issue is about education after all.
Lastly, retirees in King County who are on a low income can apply for a complete exemption from new taxes. Rather than mislead seniors into thinking they’ll pay three times the actual increase, the anti-LWSD campaign should instead provide the information to seniors on how to apply for the exemption.
Education is critical to all citizens – people with kids in school now, people who run businesses who need educated employees and retirees who want to live in a safe community filled with people who have the education to seek gainful employment. Let’s move forward and question our district about finances, but it’s a disservice to our community to teach the wrong formulas or do incorrect math and use that to scare seniors.
George Hu, Kirkland