A news article out of Contra Costa County, CA recently caught my eye. It was about the loss of trust the local community had in their local school district (you can read that article here). The issue revolves around the board’s decision to issue more bonds even though it was projected that property taxes would exceed a promise not to exceed a rate per $100,000 that had been set by a previous bond. The board’s decision in support of an additional issue will drive the rate even higher.
Because of the recent collapse and slow recovery of house prices, the assessed property values upon which property taxes are based, county tax assessors were forced to raise property tax rates in order to raise enough money to make annual payments on bonds. There are few options available when school boards find themselves in this situation.
If the building program is to proceed on schedule there are very few actions districts can take to influence tax rates:
- Hold an election to authorize a tax increase in the form of an additional bond (reference SDUSD’s Prop. Z).
- Issue a more expensive type of bond known as CABs (reference Poway USD. NOTE: a recently passed measure has put new restrictions on the issue of CABs).
- As long as set legal maximum tax rates are not expected to be exceeded, let tax rates exceed limits stated in the voter approved bond (Acalanes SD choose this action and authorized an additional bond issuance).
An added alternative is to slow the building program by delaying the issue of additional bonds until the promised tax rates can support the annual payment on issued bonds (reference Grossmont UHSD’s CBOC 2013 Annual Report. Page 2 explains how conservative financial planning predicts that the 10 year PropU program could take over 23 years to complete).
The issue I have not seen addressed in media reports is the impact of slowing down a building program. Let’s say that in the last few years of a bond program the plan was to issue $100 million in bonds, but due to depressed assessed values that $100 million issue must now be spread over a 13 year period. Given that the cost of construction will likely increase from 2-4% each year, delaying assess to money across 13 years means that inflation will decrease the amount of construction that can be accomplished by approximately $13-28 million.
In my opinion, staff should be able to provide the analysis of the specific impacts of such a delay. The Account-Ability Budget Development system provides the tools to analyze multiple scenarios and provide specific outcomes for any particular path. This enables the board to make an informed decision on which path to choose, communicate the reasons for selecting a path to the community, and to move forward on the chosen path with tight financial controls.
