Is $288 Million the Right Price for Orange Unified High School Upgrades?

Given declining enrollment, Orange Unified School District’s $288 million bond measure may fund more school upgrades than students need.  There is also a risk that the taxpayer cost of debt service for the bond issue will exceed the district’s forecast rate of $29 per $100,000 of assessed valuation.

According to statistics from Ed Data, enrollment across the four OUSD high schools fell from 9,311 in the 2010-2011 school year to 8,936 in 2014-2015, the latest school year for which figures are available. The district projects continued enrollment declines through 2018-2019, but does not provide a breakout by school. Total OUSD enrollment – excluding charters – fell from 27,344 in 2014-2015 to 26,685 in 2015-2016, and is expected to reach 26,135 in 2018-2019.

Using the current enrollment of 8,936 students, proposed renovations to the four high schools would cost over $32,000 per pupil (excluding interest). By contrast, Orange Lutheran High School completed its own upgrade in 2014 at a cost of less than $12,000 per pupil.

CAFETERIA PLANNING: The cafeteria at private Orange Lutheran, part of a recent $12,000 per pupil upgrade. In the same city, union-controlled Orange Unified wants to spend $32,000 per pupil to renovate four high schools.

CAFETERIA PLANNING: The student cafeteria at private Orange Lutheran High School, part of a recent $12,000 per pupil upgrade. In the same community, union-controlled Orange Unified wants to spend $32,000 per pupil (plus interest) to renovate four high schools.

Nationally, the median cost of building a new high school was $45 million in 2014 according to School Planning and Management (although the median high school housed 1,000 students, about half the number in OUSD schools). This suggests that the cost of renovating OUSD’s four high schools, at an average cost of $72 million each, may not represent a savings over building new facilities.

Further, the district may spend more than $288 million on the renovations if it is able to obtain Proposition 51 matching funds.  If Prop 51 passes in November ,the state’s Office of School Construction will have $9 billion in state general bond proceeds that can be allocated to school districts renovating and building schools.

With a shrinking student population and the potential availability of state matching funds, it appears that the district could borrow much less than $288 million to ensure that high school students have an appropriate learning environment. This raises the question of how the board decided to ask for $288 million in borrowing authority.

The district hired an opinion research firm to poll voters on a possible bond measure. In one survey, the research firm asked voters whether they would approve bond measures at four different tax levels – $25, $29, $34 and $39 per $100,000 of assessed valuation. They found than less than 55% of the electorate would support a bond measure that added $34 or $39 of taxes per $100,000 of assessed value, but that 59% favored a $29 measure and 62% supported a $25 measure. Thus, it would appear that the bond measure was sized on the basis of voter appetite – not on an objective assessment of actual renovation needs and costs.

On October 4, the district’s financial advisor presented a financing plan consistent with the proposed $29 tax increase per $100,000 of assessed value. The plan assumes that $79 million of bonds would be sold shortly after the election and the remaining $209 million would be sold in 2021. Projected debt service rises from $9.5 million in 2017 to $28.8 million in 2046 – representing a 4% annual rate of increase. For the tax rate to stay at $29 per $100,000, assessed valuations will have to also rise by 4% annually. According to the financial advisor’s data, OUSD has experienced annual assessed value increases of 4.26% over the past 15 years. If this trend continues, the tax rate for the new bonds would actually decline slightly – as the tax base expands slightly faster than the debt service costs. If, however, the valuation increase does not materialize, perhaps because of depressed economic conditions or an earthquake, the tax rate would have to increase.

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