Leases are a terrible way for Montgomery County Public Schools to fund its capital expenditures. Based on a review of official MCPS board minutes and other documents, it is clear that MCPS is making widespread use of financial leases as a vehicle to finance current purchases. The use of this methodology has exploded in recent years. We lease our high tech blackboards (Promethean Boards), and we recently learned that MCPS is considering leasing the Artificial Turf they plan to lay down at Walter Johnson High School. Leasing the cover on a field we own, as if it were something we can take back to the dealership!
Surely you remember that old ‘rule’; 3 ways to buy a car - pay cash, take out a loan, or lease it. Every expert on the planet will tell you that Leasing is the most expensive way to drive a car, unless you are a corporation and there is some tax advantage (MCPS is not such an entity). Want to save money? Pay cash! Simple and true.
For example, in a recent board action we see that via these leases we, the taxpayers of Montgomery County, are effectively paying 3.5% interest on our technology leases and 3.8% on our vehicle leases. But the yield curve for Montgomery County municipal bonds going out five years is approximately 2.5%. Bottom line is Jerry Weast and our Board of Education are saddling us with an interest rate at least 1% higher for these items than we need to pay.
Beyond the millions of dollars wasted, Weast and the MCPS Board of Education are using this process to sidestep Maryland laws covering fiscal responsibility, in that they are making these purchases without the approval of the Montgomery County fiscal authority (by law – our County Council). They are spending money, $13 million in the case of the Promethean Boards, without an approved appropriation. The facts are that they are leasing them, leaving us to pay for this over five years, and paying 1% higher interest rate then necessary.
Thanks MCPS, really appreciate your help in these difficult financial times.
Not.
Bob Astrove
As Bob stated, the MCPS interest rate is 3.5% while the county's interest rate on similar obligations is 2.5%. That 1% difference doesn't sound like much, but it actually results in MCPS paying 40% more interest (1 divided by 2.5) than the county pays for its capital projects.
ReplyDeleteAlso, keep in mind that the stated interest rate is a per annum rate, so on a 5 year lease/purchase contract, the taxpayers actually pay about 3.5% x 5 or about 17.5% more for the product than if MCPS had paid in cash. (Because of the way the amortization works, the actual extra amount paid is slightly less that 17.5%, but the point is that we are spending considerably more for identical products than other school districts.)