Bond-Financed Teacher Housing Comes of Age

SAN FRANCISCO - Can tapping into tax-exempt financing help school districts and universities attract and retain teaching staff?

That's a question school districts across the nation have taken a hard look at over the past few years, especially in high-cost areas where, until recently, housing prices were rising at a much faster clip than incomes.

Key community service workers such as teachers, nurses, and police officers were among the hardest hit by the run-up in housing prices of the mid-2000s, and schools in expensive cities were finding it increasingly difficult to recruit and retain teachers.

One solution for a few districts has been to use debt to finance housing designated specifically for teachers.

The Santa Clara Unified School District, for instance, was losing good teachers after they'd logged a few years in the classroom because buying a home in pricey Silicon Valley was out of their reach, even with pay scales that beat out other school districts in the San Francisco Bay Area.

After the Santa Clara district issued $7.6 million in certificates of participation to build a 40-unit apartment complex in 2001, attrition rates plunged for employees housed in the district-owned apartments compared with other staffers hired at the same time, creating substantial savings for the district and - perhaps as important from the perspective of local parents and officials - giving students increased stability.

"In the current budget crisis that the state's in, this is a no-cost benefit that school districts can offer their employees," said Bruce Dorfman, a principal with Thompson Dorfman, the real estate development firm that developed Casa del Maestro, the Santa Clara teacher-housing complex.

Although the need for school districts to create teacher-specific housing may be declining as budgets and staffing shrink, it's not likely to disappear entirely.

While average teacher pay nationwide climbed above $50,000 in 2006-07 to reach $51,009, teacher salaries in the majority of states remained below the nation's median household income of $50,233, according to data from the American Federation of Teachers and the Census Bureau. Teachers earned above the median in just 16 states, a survey from the federation shows.

It's not just salaries that are prompting districts to consider providing housing for their teachers - it's housing costs. In some states, teachers are among the nearly 18 million U.S. households paying more than half their incomes for housing, a ratio that makes them "severely cost-burdened," according to the State of the Nation's Housing 2008, a report from Harvard University's Joint Center for Housing Studies.

In differing forms, districts across the nation are following Santa Clara's lead. One of the most creative approaches to resolving the teacher-retention problem was undertaken in New York City, where about 4,000 teachers moved out of the city in 2006, according to the United Federation of Teachers, which represents more than 150,000 active and retired city public-school teachers.

There, the New York City Teachers' Retirement System collaborated with the city's Housing Development Corp. to build a 234-unit housing project for teachers. The teachers' pension fund bought $28.3 million in bonds from the HDC, which provided $20 million in below-market-rate loans for the project.

However, the economic downturn could throw a wrench into that project, as developer Atlantic Development Group has said it won't guarantee to pay prevailing wages to workers at the development, according to a New York Times article. That move reportedly prompted a threat from the teachers' pension fund to pull its support in late 2008.

Programs such as those in Santa Clara and New York City mark an evolutionary step in the efforts of school officials to use public financing to retain teachers. The Los Angeles Unified School District is among those that previously issued bonds to finance down-payment assistance for teachers looking to buy their first homes. Selling bonds to finance housing construction is the logical next step.

In the fall, LAUSD officials began asking real estate developers to submit proposals for building teacher housing on surplus district land. San Francisco school officials had already made a similar move earlier in 2008.

California Gov. Arnold Schwarzenegger last year vetoed legislation that would have allowed school districts to issue general obligation bonds to fund teacher housing. However, districts can still use certificates of participation for such deals, a financing structure pioneered by Lori Rainieri, president of Government Financial Strategies and financial adviser to the Santa Clara school district.

Elsewhere in the country, voters have said yes to the use of public debt for teacher retention. In Colorado this past fall, voters approved a measure that would allow the Aspen School District to sell $12 million in bonds to finance the creation of teacher housing.

"There's enabling legislation in most places that allows you to do that, both taxable and tax-exempt, and it's the way to go," said Ehud Mouchly, a former vice president with workforce-housing developer UniDev LLC. However, he noted that the current state of the credit markets will likely put teacher-housing deals on hold for a while.

"In general, issuance in the housing sector was down in 2008, and I would anticipate this to continue in 2009," said Florence Zeman, a senior vice president with Moody's Investor Service. "Much of this is due to the overall [credit] crunch, which is resulting in higher interest rates on municipal bonds as well as a concern about housing credits in general."

Luckily for officials in Santa Clara, they got their second round of COPs for Casa del Maestro issued before the credit markets seized up. The $5.4 million the district sold in 2006 at a yield of 4.59% is funding 30 new apartments adjacent to the original 40, which rent for about $1,300 compared to market rents of $2,500 to $3,000. And though issuance may slow or halt for a while, there's plenty of demand from school districts throughout the nation interested in doing similar deals after the credit markets unfreeze.

"We were the first in the United States to do anything like this," said Roger Barnes, business administrator for Santa Clara USD, adding that it sparked the interest of administrators in other states. "We probably entertained 20 to 30 [school districts] who came here to look, and then I've literally corresponded with hundreds of school districts across the United States."

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