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HomeMy WebLinkAbout1996-03-12; City Council; 13547; Presentation on Proposition 203CITY OF CARLSBAD — AGENDA BILL AB# JS.W? MTG. 3-/£ ~9^ DEPT. CM TITLE:PRbSENIAIION ON PHOPOSIIION 203: PUBLIC FACILITIES BOND ACT OF 1996 DEPT. HD. Cj^ CITY ATTY^f CITY MGR3E? co•H4-) On) ofi oo 4-i •HOc o og o Oo RECOMMENDED ACTION: RECOMMENDATION Receive presentation regarding Proposition 203, the Public Education and Facilities Bond Act of 1996. BACKGROUND The City Manager has received a request from Tim T. L Dong, President of MiraCosta College to present information to the City Council regarding the Public Education and Facilities Bond Act of 1996. FISCAL IMPACT None Attachment 1. Letter from Mr. Dong dated February 15, 1996 02-15-1996 03:52PM FROM TO 7209461 P.01 MIRACOSTA COLLEGE GOVERNMENTAL AFFAIRS COMMITTEE One Barnard Drive Cceanside.CA 92056 Committee Members: Diane Besscll, Co-Chair Board of Trustees Robert Kleffel, Co-Chair Board of Trustees Carolyn Batiste Board of Trustees Kimberiy Perry Administration Gina Haggeny Associated Students NinaHyslop Associated Students Lynda Litvinets Associated Students Paul GoUong Classed Staff Bonnie Hall Classified Slcff Irene Duehren Community Bonnie Kleffel Community Barbara Riegel Wayne Community John Ford Faculty PhilGilben Faculty Tim T^L. Dong Ex-officio Sharatee Jorgensen Ex-officio Lorelta Burke Recording Secretary February 15,1996 Mr. Ray Patchett Carlsbad City Manager 1200 Carlsbad Village Drive Carlsbad, CA 92008 Dear Mr. Patchett: Please place me on your agenda for the City Council Meeting of Tuesday, March 12,1996. I am requesting 5-10 minutes to discuss Proposition 203, the Public Education Facilities Bond Act of 1996. Please call me at 757-2121, ext. 200, to confirm. Thank you in advance for your assi stance. Sincerely, Tim T. L. Dong President, MiraCosta College TOTftL P.01 TO: MAYOR CITY COUNCIL VIA: Assistant City Manager FROM: Assistant to the City Manager AGENDA ITEM #9 Attached is some additional information regarding Proposition 203, the Public Education Facilities Bond Act of 1996. LORI LIEBERMAN Attachments c. City Manager City Attorney City Clerk MiraCosta College One Barnard Drive, Oceanside, CA 92056 Telephone (619) 757-2121, Fax (619) 757-2601 £./ rjfiS? 77*^ MiraCosta College San Elijo Campus l£- I pllGgG 3333 Manchester Avenue, Cardiff -by-the Sea, CA 92007 iP"**' ^-' Telephone (619) 944-4449, Fax (619) 942-1092 February 28, 1996 City Manager Ray Patchett City of Carlsbad 1200 Carlsbad Village Drive Carlsbad, CA 92008 Dear Mr. Patchett: Thank you for the opportunity to give a ten minute oral report, and answer questions, on Proposition 203 at your City Council meeting of March 12, 1996. As your office requested, the following will give you an overview of Proposition 203, the Public Education Facilities Bond Act of 1996, on the March 26, 1996, ballot: • This measure will allow the voters of California to vote for a $3 billion bond for capital outlay construction funding for K-12 and higher education. • When passed, this measure will provide the funding to build, renovate and equip educational facilities with technology, infrastructure, equipment, and new student learning stations. • The amount estimated for community colleges to receive is $322 million over the next two years. MiraCosta College projects that have been approved by the State and are waiting for funding include renovating two large classroom buildings on the Oceanside campus that are currently unsuitable for use. • Proposition 203 would also provide funding for the new building program for California State University San Marcos, which would benefit our area's transfer students. Again, thank you for the opportunity to speak at your City Council meeting. Sincerely, Tim T. L. Dong President Public Education Facilities Bond Act of 1996. Official Title and Summary Prepared by the Attorney General PUBLIC EDUCATION FACILITIES BOND ACT OF 1996. • This act provides for a bond issue of three billion dollars ($3,000,000,000) to provide funds for school facility improvement programs. • Earmarks $2.025 billion for primary and secondary schools, and $975 million for higher education. -... / y ••••••* -•• • .^ • Appropriates money from General Fund to pay off bonds. • •• Summary of Legislative Analyst's Estimate of Net State and Local Government Fiscal Impact: •• State General Fund cost of about $5.2 billion to pay off both the principal ($3 billion) and interest '($2.2 billion) on the bonds. ' -^ • The average i^inent for principal and interest uver 25 years would be about $208 million per year. . - . Final Votes Cast by the Legislature on AB 1168 (Proposition 203) Assembly: Ayes 69 Noes 6 Senate: Ayes 30 Noes 5 Analysis by the Legislative Analyst Background ' Public education in California consists of two distinct systems. One system includes local school districts that provides elementary and secondary (kindergarten through 12th grade) education to about 5.3 million students. The other system (commonly referred to as "higher education") includes local community colleges, the California State Universities, the University of California, and the Hastings College of the Law. This higher education system provides a wide range of education programs beyond the kindergarten through 12th grade (K-12) level. K-12 Schools The state, through the State School Building Lease-Purchase Program, provides much of the money for school districts to buy land and to construct, reconstruct, or modernize school buildings in the K-12 system. In order to receive money under this program, school districts must meet certain eligibility requirements.Under other related programs, the state also provides money to (1) remove hazardous asbestos from school buildings, (2) purchase portable classrooms, (3) repair and renovate child care facilities that provide care for school-aged children before and after school hours and during summer vacation, and (4) purchase and install air conditioning equipment and insulation materials in eligible year-round schools. Since 1986, the voters have approved $6.8 billion in state general obligation bonds tp fund these K-12 school facilities programs. As of January 1996, there was about $60 million remaining from these funds. In addition to obtaining money from the state, local school districts raise funds for school buildings in three main ways: • Local General Obligation Bonds. School districts are authorized to sell bonds to finance school construction projects, with the approval of two-thirds of the voters in the oUstrirt. In these cases, the bonds are paid off by taxes that are levied on property located within the school district. • Special Local Bonds (Known as "Mello-Roos" Bonds). School districts are'authorized to form special districts in order to sell these bonds for school construction projects, with approval of two-thirds of the voters in the special district. (The special districts generally do not encompass the entire school district.) The bonds are paid off by charges assessed to property owners in the special district. • Developer Fees. School districts are authorized to . impose developer fees on new construction. As of January 1,1996, the maximum allowable fee under state Taw is $1.72 per square foot on residential buildings and 28 cents per square foot on commercial or industrial buildings. These fees may be used only for construction and reconstruction of school buildings. K-12 School Building Needs. There is no district- by-district estimate on the future demand for school facilities. The state Department of Finance estimates that the number of students attending K-12 schools statewide will increase by about 600,000 over the next five years, Given this projected growth, several billions of dollars will be needed statewide for new school facilities over the next five years. Additional funds will be needed for reconstruction or modernization of existing school facilities, including air conditioning for schools that operate year-round. As of May 1995, applications submitted by school districts for state funding of land and new school buildings totaled approximately $5.3 billion. In addition, applications for state i funding .to reconstruct or modernize school buildings, purchase portable classrooms, remove hazardous asbestos from schools, and provide air conditioning for year-round schools totaled approximately $1.8 billion. Higher Education California's system of public higher education includes 139 campuses serving about 1.8 million students: • The University of California has nine campuses, with a total enrollment of about 158,000 students. This system, offers bachelor, master, and doctoral degrees, and is the primary state-supported agency for research. • The California State University system has 22 campuses, with an enrollment of about 330,000 students. The system grants bachelor and master degrees. • The California Community Colleges provide instruction to about 1.3 million students at 107 campuses operated by 71 locally governed districts throughout the state. The community colleges grant associate degrees and also offer a variety of vocational skill courses. • The Hastings College of the Law is governed by its own board of directors and has an enrollment of about 1,300 students. ... The state provides money to support these institutions of public higher education. This support covers both ongoing operating and capital improvement costs. In addition to state funds, these institutions also receive widely varying amounts of nonstate funds for both support and capital improvements. Since 1986, the voters have approved nearly $2.4 billion in general "Hieation honas for capital improvements at miblic higher education campuses. As of January 1996, there was about $14 million remaining from these funds. In addition, since 1986 the Governor and the Legislature have provided about $2.4 billion for public higher education facilities from lease-payment bonds. ^Higher Education Building Needs. Each year the institutions of higher education prepare five-year capital outlay plans, in which they identify projects that they believe should be funded over the next five years. The most recent five-year plans identify a total of $6.6 billion in projects for the period 1996-97 through 2000-01. Proposal This measure authorizes the state to sell $3 billion in general obligation bonds for K-12 schools ($2.025 billion) and higher education facilities ($0.975 billion). General obligation bonds are backed by the state, meaning that the state is obligated to pay the principal and interest costs on these bonds. General Fund revenues would be used to pay these costs. These revenues come primarily from state personal and corporate income taxes and sales taxes. K-12 School Faculties The $2.025 billion for K-12 schools would be used as shown in Figure 1. . As the figure shows, almost one-half of the funds (at least $960 million) would be used to build new schools. The measure also allows up to $1.065 billion to be used for a wide variety of school capital outlay purposes. vThe $2.025 billion for K-12 schools would be distributed to eligible school districts by the State Allocation Board. The board is a seven-member body composed of four members of the Legislature, two directors of state departments, and the Superintendent of Public Instruction. State School Building Aid Program. This measure would allow $40 million in unsold bonds previously approved for the State School Building Aid Program to instead be sold for the State School Building Lease-Purchase Program. (Under the aid program, the state lends bond funds to school districts for school construction and the districts pay back the loan plus interest over a period of up to 30 years. However, there has noi been activity in the aid program for many years. This is because since 1976 the state has funded school facilities under the lease-purchase program.) In addition, this measure would transfer any remaining funds (about $15 million) from prior sales of bonds under the aid program to the lease-purchase program. Figure 1 Uses of $2.025 Billion for K-12 Schools At Least $960 Million to: • Buy land and construct new school buildings. Up to $900 Million for: • Projects in small school districts that may not otherwise receive state funding because of their small size. • Removal of hazardous asbestos from school facilities. • Purchase of portable classrooms or child care facilities. • Reconstruction or modernization of existing school buildings. • Purchase and installation of air conditioning equipment and insulation materials for eligible school districts with year-round school programs. • Construction of school facilities in districts where " enrollment increases are caused by the building of new state1 or federal prisons. •: "./--!"-" ;-•*'• -j . • Providing classroom facilities for severely handicapped children for programs administered by county boards of education. .'"'"*"" • Replacement of roofs at existing school buildings. • Projects and equipment to increase school security. Up to $100 Million to: • Strengthen school facilities for earthquake safety. Up to $40 Million for: • Projects in which school districts pay for at least 60 percent of die cost of a project. . ,_ Up to $25 Million for: . ' • School projects that include certain facilities (such" as a library or park) that will be jointly used by the school district and another governmental entity. Higher Education Facilities -V The measure includes $975 million to construct new buildings, alter existing buildings, and purchase equipment fo: use in these buildings for California's public higher educatior system. The Governor and the Legislature .would decide thi specific projects to be funded by the bond monies. Fiscal Effect For general obligation bonds, the state makes principal am interest payments from the state's General Fund typically ove a period of about 25 years. If the $3 billion hi bonds authorizec by this measure plus the $40 million in unsold bond: transferred from the School Building Aid Program are sold a an interest rate of 5.5 percent, the cost over the period would bi about $5.21 billion to pay off both the principal ($3.04 billion and interest ($2.17 billion). The average payment for principa and interest would be about $208 million per year. For the text of Proposition 203 see page 9 PPR An Overview of State Bond Debt This section of the ballot pamphlet provides an overview of the state's current bond debt. It also provides a discussion of the impact the bond measures on this ballot, if approved, would have on this debt level. Background What Is Bond Financing? Bond financing is a type of long-term borrowing used to raise money for specific projects. The state gets money by selling bonds to investors. The state must pay back the amount of the bonds along with interest. The money raised from bonds primarily funds large capital outlay projects, such as prisons, schools, and colleges. The state uses bond financing mainly because these facilities are used for many years and their large dollar costs are difficult to pay for all at once. General Fund Bond Debt. Most of the bonds the state issues are general obligation bonds. The General Fund makes debt payments on about three-fourths of these bonds. The remaining general obligation bonds (such as veterans housing bonds) are self-supporting, and therefore do not require General Fund support. The • money in the General Fund comes primarily from state personal and corporate income taxes and sales taxes. General obligation bonds must be approved by the voters, and are placed on the ballot by legislative action or by initiative. • The state also issues bonds known as lease-payment bonds. These bonds do hot require voter approval. The state has used these bonds to fund capital outlay projects in higher education, to construct prisons, and to build state offices. -The General Fund also makes debt payments on these bonds. "7;a* Are the Direct Costs of Using Bonds? The state's cost for using bonds depends primarily on the interest rate that is paid on the bonds, and the number of years over which they are paid off. Most general obligation bonds are paid off over a period of 20 to 30 years. Assuming an interest rate of 5.5 percent, the cost of paying off bonds over 25 years is about $1.72 for each dollar borrowed—$1 for the dollar borrowed and 72 cents for the interest. These payments, however, are spread over the entire period, so the cost after adjusting for inflation is less. This is because future payments are made with cheaper dollars. Assuming a 3 percent future annual inflation rate, the cost of paying off the bonds in today's dollars would be about $1.25 for each $1 borrowed. The State's Current Debt Situation The Amount of State Debt. As of October 1, 1995, the state had about $19.9 billion of General Fund bond debt—$14.4 billion of general obligation bonds and $5.5 billion of lease-payment bonds. Also, about $4.1 billion of authorized bonds had not been sold because the projects to' be funded by the bonds had not been undertaken. Debt Payments. We estimate that payments on the state's General Fund bond debt will be around $2.3 billion during the 1995-96 fiscal year. This is about 5.1 percent of estimated General Fund revenues!-This percentage is referred to as the state's "debt ratio." In 1990-91,-the state's debt ratio was 2.5 percent. We estimate that as already authorized bonds are sold, the state's annual payments for bond debt will increase to about $2.5 billion in 1998-g9rtand decline thereafter. General Fund revenues are expected to increase at a faster rate than General Fund bond debt. Consequently, if no new bond proposals were approved, the state's debt ratio would decline to 4.fe^ercenf'in 1998-99 and continue to decline thereafter. . ';>>-/•••.--: . - :v----.vrj--. - .••-•• •••' Bond Measure Proposed on the Ballot ; There are two general obligation bond measures on this ballot, totaling $5 billion: . • $2 billion to strengthen state-owned bridges and toll bridges for earthquake safety. . • $3 billion for K-12 school and higher education facilities. • - •: •• If these bond measures are approved, we estimate that the state's bond debt payments would be about $2.8 billion in 1998-99 and the state's General Fund bond debt would total $24.3 billion (after accounting for the sale of some authorized bonds and the retirement of some debt). The debt ratio would peak at 5.3 percent in 1998-99 and decline thereafter. Voter approval of additional bonds at future elections or legislative authorization of additional lease-payment bonds wpuld increase the state's debt. This overview of state bond debt replaces a similar overview in the principal ballot pamphlet. This overview discusses the impact of the two bond measures on the ballot, including Proposition 203, a measure which qualified for the ballot after the printing deadline for the principal ballot pamphlet. P96