Debt and Tax Limits Always Waived When School Districts Want to Borrow More Money

Research by the California Policy Center now allows the People of California to see – for the first time – a chart listing all California K-12 school district requests to the state for waivers to sell bonds for school construction. These waivers allow school districts to circumvent state laws meant to protect property owners from excessive public debt and taxes.

State law allows the California Board of Education to grant waivers from numerous sections of the California Education Code, including bond indebtedness limitations. This power is obscure but significant, and until now a compilation of the history of bond indebtedness waivers has not been available to the public.

Out of the 51 waiver requests from 2000 through 2014, only one received notable public attention. In 2013, the fourth waiver request since 2002 from the West Contra Costa Unified School District became controversial when some local taxpayer activists and a columnist for the Contra Costa Times criticized the district for repeatedly seeking waivers to borrow yet more money for construction through bond sales.

To develop a bond indebtedness waiver chart and provide the public with comprehensive information about the waivers, the California Policy Center obtained a document from the California Department of Education listing the bond indebtedness waivers granted by the California Board of Education since 2000. Staff indicated that this listing was an “internal working file and has not been reviewed or validated for accuracy.”

California Policy Center - School District Requests to California Board of Education for Waivers from Tax and Debt Limits, 2000-2014 - Listed by DistrictCalifornia Policy Center researchers checked the data, corrected various inaccuracies, and expanded on the data using meeting agendas, staff reports, and meeting minutes. Now the public finally has a useful resource for considering public policy related to bond indebtedness waivers.

The link below goes to a PDF chart detailing the complete history of school district requests to the California Board of Education for waivers from tax and debt limits in order to borrow money for school construction by selling bonds to investors. Preliminary activity in the first three months of 2015 is also included.

History of Bond Indebtedness Waivers for California K-12 School Districts

The PDF chart includes linked citations of source documents on the California Department of Education website.

At the end of this article is the same chart in JPG format.

Initial Policy Recommendations Concerning Release of Information to the Public on Bond Indebtedness Waivers

As a result of this exercise, the California Policy Center recommends that the state legislature improve government transparency by amending the section of the California Education Code that requires the California Department of Education to produce and submit an annual report about waivers.

[California Education Code Section] 33053. The State Department of Education shall annually submit a report to the Governor, Legislature, State Board of Education, and make the report available to the superintendent and board president of each school district and county office of education. This report shall include a description of the number and types of waiver requested of the board, the actions of the board on those requests, and sources of further information on existing or possible waivers.

As of April 1, 2015, the California Department of Education has only posted reports from 2010, 2011, 2012, and 2013 on its web site. And these reports have limited value because the Department of Education provides the bare minimum of information required by law. Reports provide a spreadsheet with a tally of the number of waivers requested and approved for various provisions in the California Education Code. They do not name specific school districts that requested the waivers. Reports provide annual statistics in isolation, with very limited effort to compare tallies to past years to show trends. Links to the charts are here:

California Department of Education Waiver Reports for the Years 2010 Through 2013

Waivers from the California Education Code are an obscure area of public policy, and even if people know about waivers, they must perform time-consuming research to determine what is going on in their school district or statewide. If the California legislature chooses not to amend this inadequate law, the California Department of Education could (and should) choose to make an administrative decision to provide more details about the waivers in the annual reports.

What the California Policy Center Discovered

From 2000 through 2014, California K-12 school districts have requested 51 waivers from sections of the California Education Code that do the following:

  1. Prohibit the total amount of bonds issued (the total amount of principal) from exceeding 1.25 percent or 2.50 percent of the most recent assessed aggregate value of taxable property in the district. (Elementary and high school districts have a 1.25% limit; unified school districts have a 2.5% limit.)
  2. Prohibit the total amount of bonds issued as authorized by one bond measure from requiring a property tax that exceeded $30 or $60 per year per one hundred thousand dollars ($100,000) of taxable property.  (Elementary and high school districts have a $30 limit; unified school districts have a $60 limit.)

Out of these 51 waiver requests, school districts ended up withdrawing three of them. The State Board of Education approved all 48 other waiver requests, without one dissenting board vote.

The 100% approval rate for waiver requests is not surprising. In 2013, the State Board of Education took action on 518 waiver requests for all sections of the California Education Code and approved 97% of them. Under state law, the California Board of Education is generally obligated to grant such waivers as long as the request is submitted correctly and the waiver doesn’t violate seven criteria specifically listed in state law:

  1. The educational needs of the pupils are not adequately addressed.
  2. The waiver affects a program that requires the existence of a schoolsite council and the schoolsite council did not approve the request.
  3. The appropriate councils or advisory committees, including bilingual advisory committees, did not have an adequate opportunity to review the request and the request did not include a written summary of any objections to the request by the councils or advisory committees.
  4. Pupil or school personnel protections are jeopardized.
  5. Guarantees of parental involvement are jeopardized.
  6. The request would substantially increase state costs.
  7. The exclusive representative of employees, if any…was not a participant in the development of the waiver.

None of those seven criteria relate to local fiscal policies, meaning there is no obvious justification in state law for the Board of Education to deny a waiver from state laws related to bond indebtedness. Nonetheless, the Board of Education has chosen to impose conditions on bond indebtedness waivers and sometimes incorporated changes from the original requests at the recommendation of California Department of Education personnel. But the Board of Education has also rejected recommendations from the Department of Education, most notably in 2013 when the board repeatedly rejected a staff recommendation that school districts applying for waivers should not be permitted to sell Capital Appreciation Bonds.

More Comprehensive Reform Is Needed for the Process for Bond Indebtedness Waivers

Some people would describe these waivers as appropriate; others would condemn them as evasions. Whichever perspective is accurate, California law is inadequate in its current requirements regarding bond indebtedness waivers for school districts. The process for considering waivers is flawed and the results of that consideration are not transparent.

The California Policy Center is preparing a large, comprehensive report for publication about the astonishing bond indebtedness that has resulted from educational construction in California. This report will include numerous public policy recommendations, including several related to bond indebtedness waivers.

One obvious recommendation is shifting responsibility for approving bond indebtedness waivers from the California Board of Education to the State Allocation Board, which makes decisions for state funding of school district construction and directs the Office of Public School Construction. Of course, there also needs to be serious deliberation about whether school districts should even have the right to request and get waivers from state limits on debt and taxes.

Since the enactment of Proposition 39 in 2000, California voters have approved borrowing $142.4 billion for school construction, including $35.8 billion through three statewide ballot measures. And as of March 1, 2015, the State of California and almost 600 local educational districts have borrowed enough money since the enactment of Proposition 39 to accumulate approximately $188 billion in debt service – that is principal and interest owed to bond investors over the full term of the bonds – including $56.7 billion through three statewide ballot measures.

Before California voters approve another proposed statewide bond measure or more local bond measures for school construction, they need to be better informed about the current state of bond indebtedness. Rhetoric about “helping the kids” needs to be balanced with fiscal reality.

California Policy Center - School District Complete Waiver History from Tax and Debt Limits, 2000-March 2015

California Policy Center – School District Complete Waiver History from Tax and Debt Limits, 2000-March 2015

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