Orange County voters are being asked to approve over $2.4 billion in new school bonds. The largest bond: Capistrano Unified School District (CUSD)’s $889-million Measure M.
The new CUSD bond would be serviced by property owners in most of the school district, but not quite all of it. One community, Rancho Mission Viejo, won’t be voting on Measure M and won’t be paying the new taxes if it passes. CUSD’s Measure M web page says the new community is being excluded on the grounds that it won’t have a school until Fall 2018, when Escenia Elementary will begin serving Rancho Mission Viejo residents. But this ignores the fact that community members can send their children to Tesoro High School, which will receive upgrades from Measure M proceeds.
In reality, district officials removed Rancho Mission Viejo from the Measure M bond district to avoid a political showdown with powerful, sophisticated real estate developers there.
In a June 22 meeting of the district board, Trustee Jim Reardon, a bond opponent, noted that “there are areas of the school district that are large and undeveloped, and privately owned, and we are going to face opposition from the landowners in those areas.”
“Then carve them out,” responded Trustee John Alpay, a Measure M supporter.
Alpay had earlier argued for using a “Swiss-cheese model” to design a district in which well-organized opposition might torpedo the district.
“You need to go through, you need to start with the whole district, and then you need to start cutting out those areas that you know that we could live without in terms of finance,” Alpay said, according to transcripts of that meeting. “They’re not gonna support it. Any rational political person is gonna do that … Get rid of them. Carve them out. There is no reason to have them in there. And I could make the same argument of other parts of the district, and that’s what we should do. I’m not saying it should be, or should be Mello-Roos districts, but this idea of one unitary is wrong. The idea of six is also wrong. It has to be something in between.”
But to exclude Rancho Mission Viejo and other potential opponents, the CUSD board needed to create a special district for the purpose of enacting the bond. In July, with a Rancho Mission Viejo Co. official in the audience, officials approved the bond district – minus the Rancho Mission Viejo Co.
Known as Capistrano Unified School District School Facilities Improvement District No. 2 (SFID No. 2), the new district will be layered atop a hodgepodge of existing special taxing districts within CUSD. The school district already has an SFID – SFID No. 1 – and it also has 10 Community Facilities Districts (CFDs) – also known as Mello-Roos districts.
Creating and administering special districts imposes extra costs. Also, special district bonds may attract lower ratings and be harder to sell to investors than more easily understood and better diversified district-wide general obligations. This should be a concern for CUSD, most of whose SFID No. 1 bonds carry a surprisingly low A+ rating from S&P – four notches below the agency’s maximum AAA rating.
CUSD is unusual in that some homes can be in multiple districts – the existing SFID, the proposed new SFID and a Mello-Roos district. Such is the case for homeowners in Whispering Hills Estates. As the 2015-16 tax bill for one lucky owner shows, total taxes are almost $16,000 on an assessed value of $837,000. About $7250 of the taxes go to servicing two SFID bonds (listed as CAP USD ID1) and the Mello-Roos obligation (CFD 2005-1).
More expensive properties draw even higher tax bills. This second tax statement, for a property assessed at $1,080,000, shows a total of $19,000 in taxes.
And these taxpayers will be paying more in the years ahead – with or without Measure M. The Whispering Hills Mello-Roos district just issued a new bond that will further increase the Mello-Roos tax there. In 2016-2017, the CFD tax alone will range from $6820 on the smallest homes to $9500 on the largest (see page 21 of the bond document).
According to CUSD, Measure M will add $41.81 of new taxes per $100,000 of assessed valuation in the first year after enactment, climbing to $42.99 per $100,000 in fiscal 2032-33. By law it can rise no higher than $60 per $100,000. This may not sound like much – until you consider the impact on a property over the 30-year typical life of a bond program. At $42 per year for 30 years, total taxes are $1260 per $100,000 of assessed value. If your house is worth $1 million – not atypical for the area – the lifetime tax is $12,600. And this is on top of the hefty tax bills CUSD residents already pay.
Finally, it is worth noting that the district is issuing the bond after years of flat to declining enrollment. In the 2011-12 school year, 50,538 students were enrolled in CUSD. In 2015-16, the figure had fallen to 49,120 (as shown on page A-2 of the bond document mentioned above). While new construction may stall this trend, it seems unlikely that the area will be hit by a wave of new students, making one wonder whether it would be possible to get by on something less than $889 million in new construction.
Marc Joffe, a policy analyst with the California Policy Center, was a senior director at Moody’s Analytics. He earned his MBA from New York University and his MPA from San Francisco State University.