HOAs Set Aside Funds for Major Repairs—School Districts Should, Too

True North Research’s website may provide the true purpose for why they were retained by the district: “To date, True North has helped its clients raise over $37 billion in voter-approved bonds, taxes, and assessments.” Translation: “We are not a polling firm, we’re a hired gun to pass your bond.”

Having been involved with school bonds during my dozen years as the Orange County Treasurer, let me inform you of what services have really been acquired. School bonds are paid through additional real estate property taxes. Consequently, homeowners and business and rental real property owners will have to pay higher real estate taxes. Renters who are subject to triple-net leases will pay higher rents.

Real property taxes are based on the assessed value, not the market value, of your home. With Proposition 13, your assessed value is the amount that you paid for the home, plus permitted improvements, plus a maximum increase of two percent cost-of-living-increase per year. Therefore, the assessed value of a home purchased 25 years ago for $500,000 may be $804,000 today, while its market value may be $2 million. Consequently, the older home purchaser may be paying $8,040 per year with their property tax bills on or before December 10 and April 10. But the new neighbor is paying $20,000 each year.

The FMP has identified $2.5 billion in needed improvements. If a 25-year bond will cost $5 billion to pay off, then roughly $200 million will be needed every year from real property owners. Let’s try to do the math.

This means that NMUSD needs to assess $202.36 for every $100,000 in assessed value to pay the principal and interest to the bondholders ($98,832,322,094 divided by $100,000 equals 988,323. $200,000,000 divided by 988,323 equals $202.36).

The old homeowner would see the annual real estate tax bill from the Orange County Treasurer-Tax Collector go up by $1,627 ($202.36 times 8.04), which is only $4.46 a day. Just giving up a daily cup of coffee. The new neighbor, however, would see an increase of $4,047 ($202.36 times 20), or $11.08 a day!

The long-time resident will be asked if they can afford to pay another $136 a month to improve their schools and, theoretically, their home values. The homeowners who paid $2 million for their homes will probably not get an email survey.

It gets more clever but also more insidious. The debt can be structured to pay lower amounts in the first 10 years and higher amounts in the following 15 years. Interest only on a $2.5 billion loan, assuming 4 percent, is $100 million. This would cut the assessment in half. A long-time homeowner would be asked if they could invest $68 per month, or only $2.25 per day, to improve classrooms.

It’s obvious that borrowing $2.5 billion is not in the cards based on the associated costs. It would never be approved by the voters. The real purpose of the survey is to determine how much financial pain homeowners can endure to pay to pass a bond. If the survey says they can only afford $10 a month, then the amount borrowed would be much lower. But the survey would decide the amount borrowed, not the actual cost estimates for materials and labor.

As an aside, the wages may be at union rates if a project labor agreement is also approved. This favoritism has increased total construction costs more than 20 percent for other school districts. Who will fund the “Yes on School Bond” campaign? Historically it’s the potential contractors and subcontractors, as they stand to make a handsome profit if selected.

It will be interesting to see where NMUSD ends up. Residents in the Tustin Unified School District are also being surveyed via email.

The second concern is this proposed bond ballot measure will be NMUSD’s second. But, when they pursued their first, the district communicated it would be their last. It committed to proper maintenance of existing buildings and setting funds aside, like a homeowner’s association, accumulating reserves for future capital improvements. It also assured voters that its Banning Ranch land holdings would be monetized for future projects.