When is a $300 million ask really a $315 million ask? The answer to this question is when it is a bond request from a school district or municipality.
Taxpayers should know that as they approve general obligation bond limits they are actually authorizing the district or municipality to receive more cash than the amount authorized by the voters. This is done through a standard bond selling mechanism called a bond premium. As the approved bonds go to market, buyers of bonds will pay more than the face value of the bond if there is a higher interest rate attached to the bond than current market rates.
Put in the most simple of terms, if the market is buying a $1,000 bond at 3 percent interest, the market might pay a borrower $1,100 for a 3.5 percent interest rate on that same $1,000 bond. In the case of a district or municipality, they may be able to receive millions more in cash than what taxpayers authorized while sticking the taxpayers with a higher interest rate over the life of the bonds.
Before taxpayers authorize a bond, they should know if their district or municipality is going to use this bond premium mechanism. Ask your local board member or city councilor.