0RRICK HERRINGTON & SUTCLIFFE, LLP
SCHOOL FINANCE BULLETIN • NOVEMBER 2000
PROPOSITION 39 PASSES! • SCHOOL BONDS AT 55% VOTE
Now that school bonds only need a 55% vote, what exactly does it mean for you? This bulletin answers the most important questions school districts are asking Orrick's legal experts about the new laws.
When does Proposition 39 take effect?
November 8, 2000, the day after the election. Major limitations are contained in two companion bills that take effect on January 1, 2001. Districts may always proceed under the old 2/3 law; however once a 55% vote election is called, these new taws apply no matter how many votes are received.
When can we conduct an election to take advantage of 55%?
Maybe not until 2002. The election must be held at a statewide primary, general or special election, or at a "regularly scheduled local election". This generally means in March and November of even- numbered years. Any other date must coincide with a regular local election, e.g., a school governing board or city council election, which will vary from district to district. The law does not authorize a special bond election on the old "established election dates" in March/April, June, and November.
How does the tax rate limitation work?
Under the new legislation, the sum of all bonds issued under any single bond measure of an elementary or high school district can require taxes of no more than $30 per year per $100,000 of assessed valuation. For unified school districts, the limit is $60, and for community colleges it is $25.
What if our projects will cost more than that?
You have three choices. You can scale back your projects or divide your project list and ask the voters for more money tater-each election gets its own $30/$60/$25 tax limit. Or you can issue bonds over a longer period of time, so that the tax rate will never exceed the limit. Or you can ask for approval under the 2/3 law and face no tax rate Limit.
What if property values decline? Will the general fund be at risk or the bonds go into default?
Orrick helped draft the law that makes sure Proposition 39 bonds will be repaid from property taxes. The county will have the power to raise taxes above the limit, if needed to repay the bonds, so your general fund will not be on the line. However, this does not give districts license to exceed the tax limit. The bond plan and maximum tax rate established at the outset of the election and reflected in the tax rate statement given to voters cannot require a tax rate higher than the legal limit.
Can we call two bond elections on the same day, each for a tax within the limit?
Maybe so. The law isn't entirely clear on this point. It may be safer to hold one election within the tax limit and wait for the rest until voters can see that the Board was able to accomplish its projects. Treading the grey area of the law is likely to split your supporters' votes, excite opposition, and could expose the district to litigation, which could delay or even cost you the election-even at 55%.
What does Proposition 39 say about how bond funds may be spent?
Do you need computers, desks and science equipment? This is another big change over existing taw. Proposition 39 bonds may be spent on all these items ... even lease payments on outstanding COPs ... maybe even books. However, bond counsel should review any spending plan.
Can we pay our administrators who implement the construction and bond program?
No. Unlike current law, Proposition 39 does not allow bond proceeds to be spent on salaries of district personnel working directly on bond projects, including construction, construction management or bond accounting. But you can continue to pay outside firms and consultants for these purposes.
What other limitations are imposed by the new laws?
Specific Projects. The 55% bond measure must contain a specific project list, certified by the Board after an evaluation of safety, class size reduction, and information technology needs. This list becomes part of the measure, and is essentially cast in stone by a successful 55% vote. Thus, careful drafting is critical to ensure you can deal with escalating project costs or changing priorities. But too much flexibility may make your bond measure unconstitutional from the start-such as reserving the right to substitute or add projects, or even to spend leftover money on projects not on the list.
Audits. An annual project completion audit and an annual bond spending audit are required.
Citizen's Committee. The companion legislation requires that you establish a citizens' committee, with the authority to audit and review the bond program and advise the board. The law says how the committee is to be composed and what it is charged with doing. The committee can ask district staff for certain information, but no bond funds may be used to finance the committee's activities.
I've heard we have to provide buildings for our charter schools now. Is that true?
Yes. In November 2003, each district must begin providing most charter schools with contiguous, furnished, equipped facilities sufficient to accommodate all in-district students in conditions reasonably equivalent to those of other district schools. If you hold a bond election between now and 2003, your obligations begin sooner. You may be able to charge the charter school rent.
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