Changing market conditions and flat property tax values have wreaked havoc on the Beverly Hills Unified School District’s plans to raise $334 million by 2018 through Measure E.
When was passed by voters in November 2008, it was supposed to raise $334 million through four series of bond sales between 2009 and 2018. The money would be used to modernize all five of the city’s aging schools.
At the time of the vote, BHUSD officials promised that residents’ bond tax rate would stay under $50 per $100,000 of assessed value; hence a home with an assessed value of $1 million (not market value) would pay less than $500 annually for Measure E taxes.
But bond consultants hired by the BHUSD reported at Tuesday's school board meeting that such a plan was no longer viable because assumptions made in 2008 about the assessed value (AV) of Beverly Hills property turned out to be inflated.
Measure E assumed that the AV of city property would rise an average of 5.77 percent for 2009 through 2011, and rise an average of 4.5 percent thereafter. However, the city’s AV rose just 1.75 percent from 2009 through 2011.
Compounding the problem is that Measure E assumed the BHUSD would pay an average interest rate of 5.5 percent on the bonds, but interest rates have risen to between 7 and 7.5 percent.
“The BHUSD is grappling with the same issues as many districts statewide that passed general obligation bonds [just before] the recession,” Assistant Superintendent for Business Services Alex Cherniss told Patch. “The relatively flat growth in assessed valuation over the last few years is in sharp contrast to the aggressive assumptions built into the original bond sale schedule forecast in 2008."
The BHUSD already sold its first round of Measure E bonds—$72 million worth—in 2009. But given current interest rates and the AV of Beverly Hills property, an unchanged Measure E program would result in significant delays in raising the $334 million needed to modernize all five schools.
If no changes are made to the Measure E program, market conditions would delay the next set of bond sales from 2012 to 2016. The third set of sales would be delayed from 2015 to 2024, with the last and largest round of sales designed to fund renovations at Beverly Hills High School postponed until 2018 to 2033.
Such significant delays would make the BHUSD’s plans to arrange bridge financing obsolete, because bridge financing—a short term loan used until permanent financing is available—is typically done for just five years. As Patch exclusively reported in April, the BHUSD had planned to seek $80 million in in order to fund the start of several Measure E projects.
One of the ways to continue with the original timetable for bond sales would be to raise the bond tax rate for residents. The BHUSD has legal authority under California's Proposition 39 to structure the bonds such that the tax rate is $60 per $100,000 of AV.
Board members Jake Manaster, Myra Lurie and Brian Goldberg expressed strong reservations to such a move, noting that it would break the BHUSD’s 2008 promise to taxpayers.
“If we want to raise tax rates, I would like to hold a referendum for voters to decide on the issue,” Board Vice President Brian Goldberg told Patch. He noted that a referendum needs just a simple majority to pass, unlike the original bond language under Proposition 39 that needed 55 percent approval to pass.
Other choices, however, involve methods that would probably jeopardize the BHUSD’s top investment ratings; rating firms and have both given the district their second-highest rating.
The district could, for example, obtain Bond Anticipation Notes, which would allow the BHUSD to access bond proceedings five years before the actual issuance of bond sales. But the market and rating firms do not look favorably upon such notes.
As there was no consensus on how to amend the Measure E dilemma, board members agreed to meet again in early August for a study session that would focus exclusively on the topic.
“Our board of education, with input from stakeholders throughout the community, will need to work together to develop a [new] financial plan to upgrade our schools,” Cherniss said.