SAN FRANCISCO - California voters narrowly approved Proposition 39 on Tuesday, lowering the voter threshold required to pass local school bonds to a 55% majority down from a two-thirds majority, eight months after rejecting an effort to drop it to a simple majority.
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The change, which will take effect Jan. 1, 2001, should lead to more school bond issuance in the state, several bond market participants said.
"I think there will be a lot more bonds brought to market because of the large unmet construction needs for California schools," said Dave Olson, a vice president at Kelling, Northcross & Norbriga, noting many school districts have shied away from bonds because they didn't think they could win over two-thirds of voters. "This tilts the balance away from taxpayer protection to school facility needs, but I think that's a good thing because the balance has been centered too far the other way."
But others predict that although a greater number of deals may gain voter approval, some think it may not increase the overall level of bond issuance significantly.
"I think we will see more issues," especially from districts waiting for a lower threshold, said Rod Carter, a senior vice president at Sutro & Co. "I don't think the dollar amount will be greater. The districts will the greatest need and support already passed their measures. Now it's the districts on the margin, in less affluent areas, struggling with the two-thirds threshold" that will benefit from Prop. 39.
Since 1986, California voters in K-12 jurisdictions have approved $18 billion in local school bonds, according to EdSource, a nonprofit education research group. In the same period, nearly $13 billion more in local bonds received at least 55% -- but less than two-thirds -- voter approval and were defeated.
Still, at least one bond market participant thinks the change will be minimal.
"This will bring a few more school issues, but this will not have a material impact on the market," said Ken Williams, president and chief executive officer of the municipal bond department at Stone & Youngberg.
A similar initiative on the March ballot, Proposition 26, attempted to lower the requirement to a simple majority but narrowly failed. Supporters immediately turned around and found ways to tweak the proposal to mitigate opposition.
The state Legislature last spring passed Assembly Bill 1908, which limits the amount of debt that can be passed at the 55% threshold and sets certain accountability limits. Debt service on so-called 55% bonds is limited to $60 per $100,000 of assessed real property value in unified school districts, $30 per $100,000 assessed value in elementary school districts and $24 per $100,000 of assessed value in community college districts. It also requires a citizen committee to oversee bond expenditures and requires bond elections to be held during regularly scheduled or special statewide elections.
Alternatively, school districts can still pass bond measures without the restrictions if they garner two-thirds of the votes.
Proposition 39 passed with just 53.4% of votes cast excluding absentee ballots, according to the California Secretary of State.
School districts with narrowly defeated bond measures on Tuesday's ballot may try again in the future.
Olson said repercussions of Proposition 39 may lead to less severe restrictions on other sectors of the market, like roads or bridges, and may affect the size of the state's next school bond measure.
"For a long time, the state has been looking to play a smaller role in school facilities funding and has pushed for more local control," Olson said. If local districts can pass bonds easier, the state may not feel the need to help as much.
"That would be fair as long as it's always there as last resort" for districts with financial hardship, he said.
