Eat Local, Buy Local, Invest Local

“Local” initiatives are growing all over the country, and Happy Valley is whole-hog on the bandwagon.

Many of us are eating sustainably-grown local food, buying locally-produced goods, shopping at locally-owned stores.

All are great and wonderful ways to support the local economy and are championed daily by people, restaurants, stores and companies all over the Centre region.

I would like to suggest we add one more option to the do-it-local menu: Invest Local. And for those in a good financial position – I have just the investment opportunity!

Five months ago the voters in the State College School District agreed – by an almost 3-1 margin – to incur eighty-five million dollars of debt for the purpose of financing new construction and renovations for the State College Area High School. In theory what those 11,000-plus yes-voters said was, “go ahead and raise my property taxes.”

This was an almost unprecedented voter response. Since 2006 when the Pennsylvania legislature adopted the Act 1 index that limits school tax increases it was only the second time – out of 17 attempts across the state – that a district had passed a referendum for a construction project.

Understandably, most voters usually tell their governments to “suck eggs” when they are asked if they want their taxes raised. But the compassionate people of Happy Valley knew their school district had a high school that had seen better days and were willing to spend the money to make it see better days again.

Before we go any further, here’s my full-disclosure disclaimer: I serve as a member of the State College Area School District’s Citizens Advisory Committee for Finance. Our purpose “is to advise the Superintendent and Board of School Directors on matters concerning the short- and long-range fiscal operations of the school district.” However, rest assured that the sistrict had nothing to do with this column. As in, it had no knowledge or input. I am purely, as pioneering political economist Adam Smith said, pursuing my own interest.

The important thing to note is that the yes-vote was to incur the debt – but didn’t limit the manner in which to incur that debt (and no, interest rate derivatives will not be a part!!).

In a perfect world, or at least one operating under standard government/business relations, we most likely wouldn’t need to have this conversation. We live in a community where Penn State generates several billion dollars a year in revenue and controls acres and acres of land and scores of buildings. The property taxes from those holdings would, under normal circumstances, generate multiple tens of millions of dollars annually. However, Penn State is a nonprofit and pays no property taxes. Which leaves the burden of covering their property tax “nut” up to the rest of us.

So, how to best incur this $85 million debt?

The standard tried-and-true method for school districts to pay for construction projects is for the district to issue bonds. The State College Area School District has a good rating with investment services and will get a very competitive rate for their bond issuance, meaning our taxes will go up as little as necessary. But as with anything in the investment world, there are costs involved in the process itself.

So, are there any “outside-the-box” options available?

Well, since we aren’t getting any property tax revenue from Penn State maybe the university could be benevolent overlords and provide a no-interest loan for the money. That would minimize the tax increase as we would need to pay back principal and would incur very little process costs. Or Penn State could build the school and the district could lease/buy-it-back at a rate that included savings to everyone.

Or … here’s where the “invest local” opportunity comes in.

Happy Valley is a very generous place. Charitable giving is a way of life and far exceeds that of most communities in this country. We also have many local residents whose financial situation allows them to be bighearted with their discretionary money and who have funds to invest in various ways. Sure, we could hope for $85 million in donations to materialize and take us all off-the-hook for this, but why not give these residents an opportunity to make some money with their money while helping their neighbors?

They could “loan” the school district money for the project at a rate lower than the bond rate, get their principal back over time, a small return on their investment, and help all of us by investing in our public educational system. At the same time they would help minimize the tax increase we’ll all be paying.

So how about it those of you with discretionary money?! You know who you are. You see each other at different events, functions and dinners. Talk it over, get with your financial people, contact the school district and work out the details. You do business locally, you eat locally, you buy locally. Here’s a great opportunity to invest locally.

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