A School Facilities Bond For 2016: Good News For Everyone

Story #9 of 10 in Haight’s series of Top Ten Stories in California Construction for 2015

Over the last 15 years, California’s population has grown by approximately 5 million people—the same number filling the entire state of Colorado. This influx has created a housing shortage that the California market has responded to with increased building of large subdivisions. Subdivisions attract families with children who are constitutionally entitled to a free public education. However, California Governor Jerry Brown’s recent lack of support for state funding of new school construction in these newly developed communities may mean that the entire cost of building them would fall on developers who pass the costs to home buyers.

The current state of school funding for new housing developments follows a nearly 20-year history between school districts and the building industry. In 1998, Senate Bill 50 (“SB 50”) established a three-level fee tier designed to spread the impact of financing new schools amongst the state, local communities and homebuilders. As a result of SB 50, school districts can levy a Level 1 fee on residential construction so long as sufficient justification exists, as shown by a Fee Justification Study. The statutory rate of Level 1 fees in 2014 was $3.36 per square foot of new construction.

In addition to Level 1 fees, SB 50 opened the door for the assessment of higher Level 2 fees on new residential development where the school district can show it meets two of the following four conditions: (1) substantial enrollment in multitrack year-round schedules; (2) placed at least one bond on the local ballot in the past four years; (3) reached a specific debt threshold; and (4) at least 20 percent of its classrooms are housed in portables. Level 2 fees represent 50 percent of the estimated cost of new schools.

Finally, SB 50 established that even greater Level 3 fees, intended to cover 100 percent of the cost of new schools, could be triggered where the state formally certifies that school facility construction bonds have been exhausted. In 2012, voters passed Senate Bill 1016 (“SB 1016”), which temporarily suspended school districts from collecting Level 3 fees until after December 31, 2014.

The recent expiration of SB 1016’s moratorium on Level 3 fees was closely watched by the California Building Industry Association (“CBIA”), an organization that is well aware no statewide education bond has been approved by voters since 2006. Moreover, Governor Brown presented a budget plan in January of this year that minimized the contribution of state funds for school facilities, taking the position that statewide school bonds were less efficient than local bonds. Shortly thereafter, faced with the real potential that new home developers may have to pay substantial Level 3 fees, CBIA commenced an initiative to qualify a $9 billion statewide school bond for the November 2016 ballot. A private poll taken in December 2014 found that 63 percent of voters likely support such a bond.

In September, the school facilities bond initiative successfully qualified for placement on the November 2016 ballot. If passed, this measure would authorize the issuance and sale of $9 billion in bonds, the proceeds of which would be allocated towards the construction of new school facilities and the modernization of existing school facilities.

The enactment of this initiative would have obvious benefits for the home building industry, as it would prolong the potential for the state to run out of money for new school construction, thereby triggering the assessment of Level 3 fees on developers. Voters planning to purchase new homes in the near future should also take note as increased costs to developers would inevitably be reflected on price tags.

This document is intended to provide you with information about construction law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

December 18, 2015