Facing $300 million in school facility needs, the Santa Barbara Unified School District must decide when — and if — it will sell off the remainder of the voter-approved general obligation bonds to fund capital improvement projects.
It’s already become quite obvious that the $110 million passed with Measures Q and R in 2010 will not win the battle against the district’s aging buildings; they estimate more than $300 million in facility needs.
While there is no argument that the need is there, and quite large, board members have concerns about selling the rest of the bonds now, since property tax rates are higher than they were in 2010 when the bonds passed.
The district and its financial consultant for bond sales want to issue the rest of the bonds using a tax rate of up to $21.75 per $100,000 of assessed value for the elementary district and up to $17.50 for the secondary district, which are higher rates than the district had in 2010 when the bond measures were passed.
Bond sales would utilize current interest bonds (CIBs), which require paying off the premium and interest as you go, according to Meg Jette, assistant superintendent of business services.
The SBUSD already issued $40 million in bonds in April 2011 using capital appreciation bonds (CABs), which have a higher term of repayment. The money has been spent on wireless infrastructure installations, San Marcos High School’s new classroom wing that houses the Health Careers Academy, and Santa Barbara High School’s kitchen renovation.
Ed Heron, an outspoken critic of the plan to sell the bonds in June or August of this year, said at Tuesday’s school board meeting he was in a mental quandary “because of what we told the voters, what the board went through, the mistakes the boards have made both in action and interpretation, and this need to sell the bonds quickly when that wasn’t the original intent.”
Practically speaking, “there’s no question we should sell the bonds,” he said, adding that he felt morally compelled to dig into the details of the tax rate implications of the board’s actions.
The previous head of district finances, Eric Smith, had told Heron that the district most likely wouldn’t be able to sell additional batches of bonds until 2015 and maybe 2021 if it were to keep tax rates level, he said.
However, there is no way to perfectly estimate — or guarantee — future tax rates, which was explained further by property tax division chief Ed Price of the Santa Barbara County Auditor-Controller’s Office at Tuesday’s board meeting.
“My job is to issue tax rates high enough to pay the debt once a bond measure is passed,” he said. The rates may have to increase because of “events in the assessed value world,” with less growth than expected or drops due to the overall economy.
The very basic formula for calculating a tax rate is dividing the debt service requirement over the total amount of assessed valuation, so a greater valuation will yield lower tax rates, he said.
In ballot arguments, campaign literature and virtually everything but the legal Measure Q and R language itself, the district and bond advocates seemed to promise voters that the property tax rates will not increase if the bonds are issued, Heron said.
The tax rates at the time, in 2010, were $13.98 and $12.48 per $100,000 of assessed value for the elementary and secondary districts, respectively.
Heron read from campaign literature and the ballot arguments — signed by board members and other local elected officials — that say the district intends to structure bonds so the tax rate will not increase as a result of issuing the bonds.
“It’s very blatant,” he said.
The legal language in the ballot measure makes it clear everything is based on estimates, but he is concerned with the actions of himself and other board members, including the decision to sell the last batch of bonds as capital appreciation bonds.
However, if the district only sold the bonds when the tax rate was at 2010 levels, it could take 30 or 40 years, he noted. Part of the problem came from wanting to spend the whole $110 million pot at once, he said.
Board president Monique Limon and others agreed, saying the board needs to be more careful with long-term decisions like this in the future.
“The board needs to take responsibility for how we prioritized other facility projects,” Limon said. One step to “rethinking the way we were making decisions” is the facilities workshop scheduled for early May. “That will rectify at least part of what put us in this position.”
Board member Kate Parker was grateful the district had its lawyers make sure no tax rate promises were included in the language, which is the root of the Hope School District’s legal problems over selling its Measure L bonds.
“I absolutely agree with everything Mr. Heron has said; it’s such a dilemma,” Parker said.
If the district can’t get the Measures Q and R projects done, the community wouldn’t pass any other bond the district tried for, and the tax rate is “already above the rate we were supposed to stay steady at in 2010,” she said. “That covenant has already been broken.”
She also emphasized the need for the district to make a decision on the bond sales before making future plans for its facility priorities.
“We need to figure out what we’re doing next so we resolve uncertainty in the community and in facilities planning,” Parker said.
Colin Bell, who will be an Adams parent for 16 years among his three children, said he was happy to pay a little more to get these projects going.
“The voters passed this, and it undermines confidence in future bonds if they don’t see these projects get started and completed and see schools deteriorate,” he said.
The school board will make a decision on future bond sales at its May 7 meeting.
“Staff will be recommending the sale of bonds,” Superintendent Dave Cash said. He thanked Heron for his research but noted: “I don’t think we could have guaranteed to the community that, if we didn’t sell the bonds until 2015 or 2021, the tax rates would have been at the same rate as 2010.”