A critical look at Measure E
O n May 21 The Signal published my column discussing some hidden facts about the cost of school bonds. Since then, The Signal has published several letters to the editor on the topic.
Those in favor of Measure E discuss the benefits while ignoring the costs. Those opposed claim taxes are too high, irrespective of the benefits provided.
The reality is that we need to consider both the costs and the benefits of Measure E.
Since COC and the William S. Hart Union High School District essentially overlap each other, homeowners need to consider both when evaluating the cost of school bonds.
In 2006 the average homeowner paid about $96 of school taxes for both districts. In 2016 that amount increased to $294.
Assuming no more new bonds are issued, in 10 years that amount will likely increase to somewhere between $600 and $1,000 per home. About 40 percent of these amounts relate to COC.
If Measure E passes, the average homeowner can expect to see additional annual property taxes of $75 to $150. The average homeowner for these calculations has an assessed value of about $365,000; you will pay more or less depending on the assessed value of your house.
The ballot materials discussing Measure E state that the expected rate of tax will be $15/$100,000 valuation. The actual current rate related to $140 million of Measure M bonds is about $14.50/100,000.
How does COC expect to issue $230 million of bonds and have a tax rate of only $15.00/$100,000?
The Measure M bonds were issued during a period of very low interest rates. Interest rates will likely be higher when Measure E bonds are issued. Thus I am skeptical that a rate of only $15.00/$100,000 can be achieved.
From my perspective, the biggest issue is that school districts are allowed to put bond measures on the ballot without providing adequate cost disclosure to the property owners.
After the bonds are issued, there is no accountability to the voters because the bond financing costs are rarely, if ever, disclosed. It costs considerably more to finance school facilities than it does to finance comparable facilities in the private sector.
This lack of transparency has resulted in abuses.
When Jerry Brown took office, he expressed concern that school districts were wasting taxpayer funds through the issuance of capital appreciation bonds, or CABs. Because interest is deferred, CABs are extremely expensive.
Six months after Measure M passed, COC borrowed $23 million by issuing a CAB that called for $87 million of interest.
In 2013, California enacted a law making it illegal to issue CABs with terms comparable to those of the CABs issued by COC in 2005 and 2007.
As The Signal noted in its editorial, COC has done a better job than most school districts in managing its financing costs.
However, COC has made some costly mistakes by issuing CABs. On May 17, COC refinanced several bonds issued about 10 years ago. College officials also issued a press release stating that there were huge savings to the taxpayer, implying that they had the business savvy to refinance now when interest rates are lower.
I have reviewed the material presented to the bond investors. For the average homeowner, the savings of this refinancing is about $7.40 annually.
Furthermore, nearly all the savings result from reducing the borrowing costs attributable to the CABs, rather than taking advantage of lower interest rates.
So when COC says it is saving the taxpayers money by reducing the interest costs, it is a bit like an arsonist claiming credit for extinguishing the fire he started.
In its editorial published May 26, The Signal urged a yes vote on Measure E “accompanied by a caution to all Santa Clarita Valley school districts: Bond measures must be more transparent in the future or that future will see no more ‘yeses.’”
Like the person who enables an alcoholic, The Signal has said, “We’ll let you drink one last time before we say no more drinking.”
The problem is the next time there will be another pressing student need and we will have to make yet another exception.
When I wrote the May 21 column, I had accepted The Signal’s rationale and was inclined to vote in favor of Measure E.
COC’s press release issued in connection with the May 17 bond issuance contained considerable spin, which quite frankly extended the lack of voter transparency.
I now realize that we need to stop our co-dependent behavior with respect to school bond measures. Thus, I have changed my mind and I am voting no on Measure E.
A retired senior tax professional who worked with a nationally known accounting firm for more than 40 years, de Bree is a Valencia resident who has spent much of the last year studying school bonds.