Capistrano Unified School District cried poor boy last year with a ballot measure seeking approval to borrow $114 million. Here was their plea: “To repair and improve Aliso Viejo’s aging neighborhood schools, fix deteriorating roofs, plumbing, sewer, electrical systems; and construct/acquire modern classrooms, facilities and technology that support college/career readiness in science, technology, arts, math and skilled trades.”
Who could be opposed to raising their real property taxes a little more to assist the city’s students and the district’s STEM efforts?
Taxpayers on the Hook
The first is the dollar amount of borrowings you are being asked to approve. As any property owner knows, the potential costs of home improvement projects almost seems infinite. But one’s wish list must be somewhat realistic. So, how much should a school district borrow? Let me explain what I observed while serving as your Orange County Treasurer-Tax Collector.Assume your home has an assessed value of $500,000. This is a low amount, I know, but if you purchased it twelve years ago for $400,000, the assessed value is now roughly $500,000, thanks to the annual maximum 2 percent cost of living adjustment increase.
You receive a call. “Can you afford $100 for every $100,000 of assessed value to improve your neighborhood schools?” It may be a little gentler, like “Can you afford to pay $1 for every $1,000 of assessed value?” You respond, “Well, another $500 a year in real property taxes, or only $1.37 per day, should be manageable.”
But what about your new neighbor who just paid $1.2 million for his home? He’ll be paying the one percent real property tax of $1,000 per month. Add to that the $100 per $100,000 for the school district bond, or an additional $1,200 per year. And wait, your neighborhood Community College District did the same thing a few years ago, so add another $1,200 to his annual property tax bill. It’s a wonder home prices are so high. Especially with the minimum annual property tax bill of $14,400 your new neighbors are paying.
The pollsters on the other end of the line are trying to determine the maximum pain that the necessary number of property owners are willing to take on. That’s how the bond measure is sized!
The second dirty secret is that the costs of the polling are usually assumed by the financial advisors who will be responsible for issuing the bonds and receiving the commensurate fees for doing so. If the bond measure fails, then their investment in a potential deal evaporates. So sizing the amount is critical, not how much is really needed.
No Reserve Funds?
The fourth dirty secret is that the school districts have the resources to set funds aside and prepare to pay cash for improvements. Doing so would reduce the costs of enhancing aging buildings, as interest expense, which could double the total costs when paying off the bonds, would be avoided. The problem is a lack of priority for such a prudent fiscal maneuver. It seems the public employee unions can’t stand to see any funds lingering in a school district bank account. So, they select the school board candidates, fund their campaigns and return after they are sworn in for increased pay and benefits, thus wiping out any reserves or sinking funds.Historically, voters would need to provide a two-thirds approval for taking on new debt. But Proposition 39, back in November of 2000, lowered the approval threshold to 55 percent for school bond measures if some simple additional restrictions were followed. Why? Because before then, more than 40 percent of bond measures failed.
There may have been other forces, like declining enrollment, a possible impending recession on the horizon, or income tax write-off concerns. Even though real estate taxes are deductible, taxpayers are now limited to a maximum deduction of $10,000 for state and local taxes (referred to as “SALT”), on their federal income tax returns. I mention this because many will find that any additional real estate taxes may have to be paid with after-tax dollars. And your new neighbor does not get to deduct the entire $14,400.
With a need for additional funding, thanks to inflation and rising pension plan contribution costs, school districts will be looking for new tax revenues. Capistrano has 150,899 residential and commercial parcels within its boundaries, the most of any of Orange County’s 28 school districts. What would prevent it from deciding to put a ballot measure up for a vote to institute a parcel tax? Let’s say it needs another $9 million per year to balance its budget. A $60 parcel tax, charging every property owner the same, would just about do the trick. Who would vote against a small tax that only costs $5 per month? Who would not give up a cup of coffee once a month to help out the students and the teachers? Who can say “camel’s nose?”
Capistrano Unified provides lessons for all of Orange County. The unions running the school districts are hungry for more, and there are two simple ways to find the funds. But both depend on your vote. Will you enable them or tell them to sharpen their pencils and live within their means, just like the rest of us?
