The Explainer: School bonds

The Explainer: School bonds

Michele Ellson

Updated at 12:53 p.m. Thursday, January 9 in bold

Schools leaders are expected to put a bond measure on the November ballot for repair and replacement of Alameda’s aged schools. So how much will you pay if voters approve it, and what will the money pay for?

The board’s likely electoral route – a vote under the rules of Proposition 39, which allows bonds to be issued with 55 percent voter approval – will mean limits on the amount of money property owners can be charged to pay for them each year and also, the amount of debt the district can take on.

The district will begin paying off the bulk of what it owes on its decade-old Measure C bonds in 2015, and that debt could additionally limit the size of a new bond. And a new state law caps the district’s ability to use the long-term, late-blooming bonds they sold to finance Measure C improvements without raising taxes.

Political considerations will also play a role, as school board members try to figure out how much voters will be willing to pay, and what for.

Here’s a quick primer on how school bonds work, Alameda Unified’s current debts and what options school board members may consider. If you have any additional questions, feel free to leave them in the comment section and we’ll do our best to answer them.

How do bonds for schools get approved, and what does the money pay for?
School bond elections typically take place under the rules of Proposition 39, which allows districts to sell bonds to build and upgrade schools with the approval of 55 percent of voters, as opposed to the traditional two-thirds. The law allows the district to spend the money on “construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities.”

How much money I will pay, and how much debt the district can take on?
Proposition 39 allows school districts (really, county assessors – the school district doesn’t see the money) to levy up to $60 per $100,000 of the assessed value of property in the school district for each bond issue approved by voters. So someone who owns a house worth $800,000 would pay up to $480 a year per voter approved bond issue, with the actual amount depending on how much debt a school district takes on, the total value of property in the district and the timetable for paying it off.

In 1989, Alameda voters approved a school bond that originally cost taxpayers $103 for every $100,000 in property value, the Oakland Tribune reported in 2004 (the vote predated Proposition 39). But that amount declined to $59 as values rose, the paper reported.

If school board members put a bond request on the November ballot as expected, the maximum amount they can ask for under these rules is another $60 per $100,000 of a home or commercial property’s value beyond what property owners are already paying – though they may decide it’s not politically feasible to ask voters to approve bigger tax bills.

The schools leaders who put forward Measure C opted to largely put off bond payments until 2015, in order to keep tax rates steady as they incurred more debt, the Tribune reported; the district is still paying off the 1989 bond, with a final payment due this year.

School districts also face a total bond debt cap of 2.5 percent of assessed value, though they can obtain waivers from this provision from the State Board of Education. West Contra Costa Unified, which has a $1.2 billion bond program, has requested and received waivers from the state allowing the district to incur bond debt equal to 5 percent of the property value in that district – though the $60 per $100,000 cap for the district’s bond programs is still in place.

How much money does Alameda Unified still owe on previous bonds, and how much are we paying for it now?
Alameda Unified owes $96 million on prior school bonds, about $89 million of it on 2004’s Measure C, a to-be-released audit report district officials shared with a reporter show. (Bond documents appear to show that $170 million in payments on Measure C’s two bond series are due through 2036; district officials didn’t explain the difference in the two numbers Wednesday.)

Property owners were charged $53.40 per $100,000 of their assessed value this past year; based on the total value of property in Alameda last year (about $9.5 billion), the county would have brought in about $5.1 million. Starting in 2015, the district will begin making payments of between $5.25 million and $10 million a year on the Measure C bonds, through 2036.

If the district is facing a cap on the amount of debt it can take on and it already owes $96 million (or more), how much can they ask voters to approve?
At this point that’s not clear, because property values will change over time, and the amount of debt the district can incur will change with them. (Property values in Alameda rose by more than a half billion dollars this year, according to the county assessor; planned development at Alameda Point and elsewhere on the Island could also impact the rolls.) The school district plans to hire a financial advisor to forecast future property values to help schools leaders figure out how much new debt they can take on.

Won’t the state pay to fix our schools?
The state has spent almost all of the $10.4 billion in bonds voters approved for its last school facilities bond program, which covers a portion of a school district’s repair and construction costs based on enrollment growth, seismic issues and other factors (Alameda Unified got $17 million in state bond funding to help make Measure C fixes). State lawmakers have proposed bills that would a new bond program on the ballot to help address an estimated $117 billion in school facilities needs across California, but none of them has been approved; in a budget proposal released Thursday, Governor Jerry Brown proposed "continuing a dialogue" on school facilities financing but noted the growing cost of the bond debt the state has incurred to fix and build schools and the need for the program to be overhauled.

So what are the district’s options? And what limitations will they face?
Generally speaking, the school board will have three options when deciding how to proceed. The district could 1) ask voters to okay a new tax increase of up to $60 per $100,000 of the assessed value of their property, 2) ask voters to okay a new and perhaps more limited bond program that doesn’t result in a tax increase or 3) abandon the Proposition 39 process and seek a traditional two-thirds vote, which eliminates the caps that law imposes.

A primary limitation the school board could face as members decide what to put on the ballot is political: Voters may be less than enthusiastic about the prospect of voting themselves a tax increase. That’s the calculation a prior superintendent and school board members reportedly made a decade ago, when Measure C – which kept existing tax rates in place by pushing big bond payments into the future – was put on the ballot. The district’s new business office chief, Robert Clark, says he doesn’t think the district will have to ask voters to pay additional taxes.

But state lawmakers have curtailed the use of the capital appreciation bonds the district bought following passage of Measure C, due to the massive levels of debt some school districts incurred by putting payments off into the future; property owners in Poway Unified, for example, will reportedly pay $1 billion for $105 million in bonds (Measure C’s $63 million bond issue will cost Alameda property owners $176 million, bond documents show). The new rules limit the amount of time districts have to pay off school bonds to 25 years (payments will be made on Measure C over a total of 32 years), and also limit interest payments to four times the amount of bond cash a district seeks.

So what happens next?
Schools leaders are at the beginning of the process of figuring out what the district’s facilities needs are, which ones they want to address with new bond money and how much repair and construction will cost. (A 2012 district study showed Alameda’s schools need $92 million in repairs, and an additional study of Historic Alameda High estimated the cost to make it seismically safe for students could top $27 million).

District staffers are crafting specifications detailing the facilities needed to support their educational vision and have kicked off a series of school site and community meetings to gauge specific school and general community needs; those meetings will take place through early May.

The school board will then prioritize the list and decide how much money to ask voters for, and for what repairs and construction. Schools leaders have said they want to put a bond before voters in November.


Submitted by David (not verified) on Thu, Jan 9, 2014

In 2004, for Measure C, the ostensibly 'arms-length' pro-tax ballot measure campaign accepted $75,000 in campaign contributions, $25,000 each from:

UBS Securities (one of the bond underwriters)
Piper Jaffray (one of the bond underwriters)
California Financial Services (exact role unknown)

UBS Securities and Piper Jaffray undoubtedly made significant profit on the deal, presumably from underwriting fees paid by AUSD and mark-up on the bonds, before re-selling to investors.

It should also be a very simple matter of basic mathematics for AUSD to calculate the amount owed on the two issues - the repayment schedule documents clearly show that, for $63 million face value in two bond issues, taxpayers would have to pay back $175.9 million.

Because they are Capital Appreciation Bonds with principal repayment delayed until this year, 2014, (NOT 2015), NO principal has been paid on these bonds.

So the amount owed is $175.9 million MINUS the meagre interest payments the district has been making over the past 9 years against Series A.

Submitted by Michele Ellson on Thu, Jan 9, 2014

Hi David: You are correct that payments on the CAB begin this year; this year's payment is about $1.1 million (see attached documents for full payment schedule).

Submitted by David (not verified) on Thu, Jan 9, 2014

Your article suggests the balloon payments don't start until next year, but they start this year...

"The district will begin paying off the bulk of what it owes on its decade-old Measure C bonds in 2015...."

Submitted by Anonymous (not verified) on Thu, Jan 9, 2014

I am not liking it. I own a home, have no kids, I am retired, and live on a fixed income. My taxes are already high enough

Submitted by Roberto (not verified) on Thu, Jan 9, 2014

When is this madness going to stop? $Drip$, $Drip$, $Drip$. And one other thing...will seniors still get a payment exemption yet still be able to vote on the issue? I can tell you the seniors in my neighborhood have a snoot full of cash (good for them), however, would love to know how they are playing this one??? Can't have it both ways. Wise up folks!

Submitted by David (not verified) on Sat, Jan 11, 2014

Can we trust AUSD to teach our kids math if they cannot pull together a basic consolidated spreadsheet that shows the entire repayment schedule for the Measure C bonds, and shows how much is owed at the End of Year, total, after any payments are made?

Such as this one:

Submitted by frank on Mon, Jan 13, 2014

There is no "Senior Exemption" for Bonds issued by School Districts. Only for Parcel Taxes.