LOS ANGELES — Though California has exhausted its authorization to issue state bonds for schools, school and community college districts have $37.5 billion in approved but unissued local school construction bonds.
That figure, from a recent California Debt and Investment Advisory Commission report, begs the question of whether a new state school bond measure is needed.
The state treasurer's office has not reached any conclusion, but the data certainly raises a question about the extent of that need, said Tom Dresslar, a spokesman for Treasurer Bill Lockyer.
The state exhausted its bond authority for K-14 schools (which include community colleges) in 2012, according to the Office of Public School Construction. There are $546.3 million worth of projects waiting that were approved for state funding that have not received the funds yet.
School bond funding appears likely to be a hot topic this legislative session.
Gov. Jerry Brown, in his budget proposal, took a skeptical tone, suggesting the entire system of how state funds are distributed for local school construction needs to be reviewed before new money is made available.
But Assemblywoman Joan Buchanan, D-Alamo, plans to introduce legislation the week of Feb. 18 to put a new state school bond on the November ballot.
Since 2002, voters have approved $90.5 billion in local general obligation bond capacity in 681 school bond elections, according to the CDIAC report. Of that amount, $37.5 billion remains unissued.
In Brown's budget summary, he advocated the state lessen its role in supporting local school building projects, writing that any future program should avoid "an unsustainable reliance on state debt issuance that characterizes the current school facilities program."
"The governor is none too enamored with the whole school facility financing structure," Dresslar said. "He has indicated the state's role is too large and we need to rethink the whole system — including what role, if any, the state should have."
Typically, the school districts fund around two-thirds of school building projects while the state contributes one-third, according to Buchanan, chair of the Assembly Education Committee.
"I would say the localities shoulder most of the burden already," Buchanan said.
Over the past 14 or 15 years, school districts have spent $66 billion on school building projects, local development impact fees have provided $10 billion, and the state has issued $35 billion in bonds for school projects, she said.
The state has roughly 6 million students enrolled in its 10,000 schools, according to the governor's budget summary.
"It is a huge selling point when school districts campaign for bonds that they can also match it with state matching dollars," Buchanan said.
While the bill has yet to be introduced, she anticipates it will see legislative support as polls have shown that 66% of voters favor state schools bonds. The amount of bonding authority being sought has not been decided upon yet, but it is expected to be much lower than the $10 billion issued the last time the state went to voters, according to Buchanan's office.
The $10.4 billion Proposition 1D, which included $8.8 billion for K-12 schools and community colleges, passed with almost 57% of the vote in 2006.
"I think clearly we will have to work with the governor and the Department of Finance to find what works for all of us," Buchanan said.
Outstanding requests from school districts for matching funds exceed the state's authority to bond, she said. They are just not being approved.
The governor's proposed budget includes transferring $211 million of remaining school facility program funds from the specialized programs to the core new construction and modernization programs for districts that have been awaiting funding, however.
One reason the CDIAC report cited as a possible explanation for school districts' reluctance to sell their authorized bonds was a lack of state matching funds.
"A lot of district-specific information needs to be collected before any decision is made to go before voters and ask them to authorize more money," Dresslar said.
For example, Dresslar said, the CDIAC report doesn't answer the question as to why there is unspent money in any specific school district although, he said, it seems obvious that Proposition 39 played a role.
Under Proposition 39, passed in 2000, school districts can seek general obligation bond authority from voters with 55% voter approval, as opposed to the previous two-thirds majority. But it limits taxes required by any single bond issue approved this way to $30 per $100,000 assessed value for an elementary or high school district, $60 for a unified school district, or $25 for a community college district.
Of the 681 K-14 bond elections approved by voters between November 2002 and November 2013, 667 were approved under Proposition 39 rules, according to CDIAC's report.
Declines in assessed value that began in 2007 when the housing market tanked likely had an impact on the ability of school districts to issue bonds. The data considered in the CDIAC report showed a marked jump in the percentage of unissued authority after 2007.
"Falling property values likely could not support the increasing tax revenue that was required to service additional debt," the report states.
That situation is rapidly changing, however with assessed values anticipated to grow, 7% a year over the next several years, according to a report from the state legislative analyst's office.
Schools that were previously unable to issue bonds their voters authorized — because assessed valuations were too low — can now or will soon be able to sell bonds.
More school bonds could be issued in the next two to four years than were issued over the past four years, said Dave Walrath, president of Murdoch, Walrath & Holmes, a Sacramento-based lobbying firm that specializes in public education.
A Jan. 22 report from the State Allocation Board estimated that between $19.8 billion and $31.8 billion is needed by school districts for new construction and modernization — much less than the $37 billion in bonding capacity for school districts in the CDIAC report.
"It is useful data," Walrath said. "But just taking the data and saying there doesn't need to be a state school bond is an overreach."
There is not a perfect match between districts with unused bond authority and districts that need school facility improvements or state matching funds, Walrath said.
In addition to schools that were not able to complete planned bond sales because of the drop in assessed values, there are others who may have sought bond authority based on the expectation that residential development would continue.
Even if such a school district could sell bonds, it might not have any need to if expected housing construction, population, and enrollment growth never materialized, he said.
The governor's concerns over the state's involvement in financing school buildings involves more than his view on debt issuance.
"He has expressed concerns about the entire system," said H.D. Palmer, a spokesman for Brown's Department of Finance.
The state's complex application process involves 10 different state agencies. It also gives larger districts a leg up over smaller districts, because it is first-come, first-serve and larger districts have staffs dedicated to the process, according to Palmer.
"The state agencies with a spoon in the pot include the DOF, the state allocation board, Department of Education, state architect, the Department of Toxic Substance Control — just to name a few," Palmer said.
