In this post, I’d like to share some documents that describe our enormous construction bond program in the West Contra Costa Unified School District. Three of the documents were submitted to the Contra Costa Times by WCCUSD and used in an editorial that came out against a new bond (and rightly so). Another one is a “Friday Memo” to the WCCUSD school board that includes information about the bond program.
How the Bonds Work
First let me sketch out how everything works in general. All of the bonds except the first are Prop. 39 bonds, so to simplify things I’ll assume the Prop. 39 rules apply to all.
The “AV”: Total Assessed Valuation
The West Contra Costa Unified School District is an area within Contra Costa County. In this area of the district are various private property lots. Each lot has an assessed value assigned by the County Tax Assessor. The most well-known limit on how the Assessor can set these valuations is Prop. 13. There are also exemptions that slightly reduce the valuation to a net assessed value. (Remember, the assessed value is just what you pay taxes on, not the market value of the house.) All these net assessed values within WCCUSD roll into the total “AV” for WCCUSD.
A vote of 55% or more on a bond measure allows the school district to issue bonds up to a certain set amount based on a reasonable projection that the tax rate will not exceed a certain stated amount per $100,000 ($100K) of assessed valuation and that bond proceeds will be used for purposes defined in a project list. These bond authorizations are usually identified by the ballot letter from the election and sometimes by the election it was passed in. (The projected tax rate cannot exceed $60/$100K AV for Prop. 39 bonds.)
Based on a bond authorization, the school district issues one or more series of bonds on terms set in the issuance. These terms can be the standard one of pay-off-some-principal-with-the-interest like in most home mortgages. Or it can be a capital appreciation bond (CAB) where the payoff of principal (or even interest) doesn’t happen till later like a balloon mortgage. The pay-off period can’t exceed 40 years; otherwise, there aren’t any other direct legal controls on how a school district chooses to structure the debt.
The Debt Ceiling That Isn’t Much of a Ceiling
There is some constraint on how much a district can go into debt with these bonds. For a unified school district like ours the total amount of bonds of this type issued by the school district cannot exceed 2.5% of the “AV” (assessed valuation). However, this debt ceiling can be waived by the State Board of Education. The State Board has always granted a waiver to WCCUSD, so this taxpayer protection is essentially meaningless.
Taxing People to Pay the Bond Debt
Now comes the fun part, taxing people to pay the debt from the bonds. Unlike State bonds that are paid back through State revenues, local bonds are paid off by individual taxpayers.
Once the district issues a bond series, the payment for the bond is out of it’s hands and the voters’ hands. Each year, the trustee for each bond issuance calculates the required debt service based on the terms of the bond issuance. The debt service for all of these bonds is rolled up together and then compared to the AV for that year in the district by the County. The County then simply calculates the property tax rate needed to service the debt and puts it in the tax bills. Afterward, the County sends the collected money directly to the bond trustees.
No Limit to the Tax Rate
There is no constraint on what this tax rate number can be. Taxpayers are absolutely liable for directly servicing the debt at whatever tax rate is required irrespective of any previous projections by the district.
Friday Memo Discussing the Use of CABs
The Friday Memo is a weekly report by the Superintendent to the WCCUSD School Board. (The district doesn’t post these on the website, so they have to be obtained through a public records request…each time.) This Friday Memo points out that WCCUSD has used CABs for specific bond issuances, but doesn’t use them a lot. Instead, WCCUSD relies on continuously issuing new bond authorizations. By keeping at or below the projected tax rate for each separate bond authorization, the district can brag about it even though the total school bond tax rate increases as each new bond authorization passes. At the end of the memo, there is an interesting table describing each bond series under each bond authorization.
WCCUSD History of Bond Authorizations
This is a more general summary by bond authorization of the information presented in the table at the end of the previous document (the Friday Memo).
WCCUSD History of Assessed Valuations and Bond Tax Rates
These two pages show the last 20 years of AV growth in the district and the bond tax rates since it all started in 98/99 with Measure E 1998. While the actual tax rate info is correct, the use of the target tax rate in the second table is a bit disingenuous. Every bond is listed with its maximum tax rate and these are summed to make one aggregate maximum tax rate. This is misleading, because each bond is at its own point in life:
- Measure E 2012 hasn’t even passed yet. We’re not “saving” $48/$100K of AV. This is ridiculous.
- Measure D 2010 has a temporary dip this one year. Remember, only $100 million of the the $380 million in bond debt authorized has been issued yet.
- Measure E 1998 has never come close to the maximum tax rate. Perhaps as the first bond and as a bond in the tougher pre-Prop. 39 era, it was thought wise to underestimate the tax rate as a way to pass more bonds later based on the “good stewardship” shown by the district in the first bond.
WCCUSD Debt Service and Tax Rate Projections
These projections include scenarios for different rates of AV growth. The projections also include the new bond measure as a breakout column.