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Missing from the list is the potential use of surplus revenue for pay-as-you-go construction of school facilities, which should also receive serious consideration.

Informing the Local Bonds Debate

By Larry McCarthy

A proposal to reduce the voter-approval requirement for local school bonds from two-thirds to a majority is midway through the Legislature after passing the Senate earlier this year. As Senate Constitutional Amendment 12 is debated in the Assembly next year, we hope members will thoroughly consider these issues:

Local general obligation (G.O.) bonds are much different than state-level G.O. bonds. It is entirely appropriate for local G.O. bonds to require a higher vote threshold than state bonds, because the local bonds have more direct impacts upon taxpayers. Consider the following comparison:

Local Bonds

• Paid through an automatic increase in the property taxes within the school district.
• Only property owners pay the tax.
• Property subject to the tax becomes collateral for payment.
• The tax increase remains in effect for the life of the bond.

State Bonds

• No automatic tax increase.
• Debt service is paid from the state's general fund to which all taxpayers contribute from personal income, sales and business income taxes.
• Through the annual budget process, the state Legislature prioritizes general fund spending to ensure funds are available for debt payment.

These differences highlight a need for caution when seeking to expand the use of local G.O. bonds by lowering the vote requirement for their approval.

Historical Perspective. The two-thirds vote on local G.O. bonds has existed since 1879, in the state's original Constitution. It has been California law in all but eight of the past 120 years. In those eight, G.O. bonds were banned altogether, before voters in June 1986 restored the funding mechanism - but still required two-thirds approval. The great growth of public schools in the 1940s, 1950s, 1960s and 1970s was all accomplished with the two-thirds vote.

Protection for Property Owners. One major justification of the two-thirds vote is to ensure proper representation of property owners who will pay the tax. Because not all voters are property owners, a two-thirds vote gives more assurance that perhaps a majority of property owners who pay the tax are represented in vote results. In many cases, renters will not pay any of the increased tax, especially when rent control exists. Even when rent control is not present, property owners may be forced to absorb all of the tax increase because nearby rental properties may be outside the taxing jurisdiction, and competition with the lower-taxed properties would preclude any pass-through.

Achievable Vote Requirement. Many school districts are able to pass bonds under existing law. There has been great success at the polls when the district has presented a good case to the voters. This may be more work, but it assures healthy accountability for the district. The ability to pass school bonds with two-thirds support is highlighted by the recent approval of a $2.4 billion bond in the Los Angeles Unified School District. This bond, the largest ever, received more than 70 percent "yes" votes.

Unequal School Facilities. If too much reliance is placed on local funding, California could face a Serrano-type mandate for equalization of school facilities. Recently, Arizona's Supreme Court declared that state's school facilities funding policy unconstitutional because it allowed too much disparity in quality of schools between low-income and high-income communities. Arizona's Legislature has struggled to design a new system for building schools, but its latest attempt was also rejected by the court. It is realistic to expect a similar lawsuit with similar consequences for California if greater reliance is placed on local funding for school facilities. Substantial reliance on developer impact fees in some high income school districts may result in unequal school facilities. State-level funding for school facilities is the most equitable method and the most likely to avoid district-to-district disparities and associated legal consequences.

This year, the Legislature has considered school finance reform that includes these elements:

• Constraint on developer impact fees for school construction.
• Enhanced long-term planning for construction needs.
• A large state bond meant to fund long-term needs.
• Measures to produce construction cost savings.
• Reducing the vote requirement to majority for local G.O. bonds.

Missing from the list is the potential use of surplus revenue for pay-as-you-go construction of school facilities, which should also receive serious consideration.

While Cal-Tax does not support reducing the two-thirds vote requirement for local bonds, we applaud the efforts of the Legislature and the education and builder communities to focus on a solution involving long-term planning and state-level funding for school facilities. Although Cal-Tax has never positioned on a multi-year bond authorization, which is part of the pending proposal, we believe it is worth consideration. This is especially true if it leads to a greater focus on long-term planning and includes mechanisms to protect the state's credit rating if budget problems resurface.

Larry McCarthy is president of the California Taxpayers' Association.