New pressure on LEAs to exceed bond debt limits

New pressure on LEAs to exceed bond debt limits

(Calif.) Despite generally favorable real estate conditions, three local educational agencies are seeking state relief from debt limits that otherwise would prevent them from issuing recently-approved bonds for needed campus improvements.

Natomas Unified, Perris Union and Sanger Unified have each petitioned the California State Board of Education in hopes of receiving a waiver from state laws that restrict how much bonded indebtedness a school district can carry.

High school districts cannot exceed 1.25 percent of the taxable assessed valuation of real estate within the district’s boundaries; for unified school districts, the limit is 2.5 percent.

Staff at the California Department of Education are recommending that the board approve each of the waiver requests—but with conditions.

The board is scheduled to consider the applications this week at their regular May meeting.

Waivers that allow districts to exceed bond debt were far more common during the years following the 2008 recession and the collapse of the housing market. Given the degree to which taxable properties in most parts of the state had fallen, virtually all school districts found themselves up against the limits almost overnight.

Since then, however, the housing market in most parts of the state hasn’t just bounced back—but escalated significantly. Indeed, during the recession, home prices in California slipped a combined 42 percent from prior highs. In the time since, the prices have increased close to 80 percent above the recessionary lows.

Because of that big upswing, it would seem that school districts would have plenty of room to manage borrowing even for big capital projects and stay under the state debt limits.

But during the same 10-year period since the recession, two other factors have changed the landscape—a big reduction in the availability of state bonds that schools could access to help pay for facility improvements; and a subsequent rise in the number of local bond issues approved by voters.

Until voters agreed to a state bond measure in 2016, the reluctance of former Gov. Jerry Brown to take on new state debt left the funding source virtually dry for an entire decade.

Meanwhile, local voters were asked to step up. Between 2004 and 2016, local school boards put a total of 1,018 bond measures on the ballot and voters approved 83 percent of them, according to a 2017 analysis by the Public Policy Institute of California.

As a result, a lot more LEAs are probably also coming up against the bonding limits.

Indeed, all three of the LEAs seeking debt waivers this week received voter approval for new borrowing just last November.

Natomas has authority to borrow $102 million; Perris has a proposed issuance of $148 million; while Sanger won approval for a $70 million bond.

The CDE staff is recommending that the board approve all three requests but with conditions. Among other things, the CDE wants to limit the amount of time each of the districts are out of compliance with the borrowing limits, and that districts do not take on any new debt during this period.

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