The Los Angeles Unified School District plans to sharply raise the property taxes of hundreds of thousands of L.A. homeowners because the recession has pushed down tax revenues needed to repay school bonds. The economic downturn has also caused a potential cash-flow crisis for the nation's largest school-construction program.
The district is allowed to raise taxes under little-known legal protections for bond holders. In essence, if revenues from property taxes can't cover installment payments for bond debt, L.A. Unified can raise tax rates, even if they rise above past projections.
The current rate is about $123 per $100,000 of assessed value. That's actually lower than the original projections, but the good news ends there.
Officials wouldn't reveal estimates for next year but, when pressed, said they expected rates above $200 by 2012. In an interview, L.A. schools Supt. Ramon C. Cortines mentioned a rate of $207, though he didn't specify the year.
For a home worth the current Los Angeles County median assessed value of $325,300, the difference, using Cortines' figure, would be about $275. For a $700,000 home, the rise would probably exceed $550, for a total bond tax bill of about $1,450.
That money is needed, along with the local bond proceeds, to end year-round school schedules and return all students to a traditional September-to-June calendar by 2012, officials said. Under the $20.1-billion construction program, 80 new schools have been built, with 51 more on the way, and thousands of others have been repaired and modernized.
The weak economy has put the once cash-flush construction program in a bind, with some money tantalizingly out of reach and other dollars withheld. The state, in particular, could owe L.A. Unified about $1 billion in construction funds by year's end.
Sacramento isn't paying up because state financiers are focused instead on arranging short-term borrowing for California's coffers rather than bond sales, said H.D. Palmer, a spokesman for the Department of Finance.
Meanwhile, L.A. Unified can't backfill with new local bonds even though voters have already approved them. The problem is that when property values drop, the district's legal debt limit also falls. That means the district can't use any of the $7 billion from Measure Q, which voters passed last year.
"Measure Q is dead until 2015 or 2016," said Cortines, whose contract expires Dec. 31, 2011. "So, Measure Q is dead in my lifetime -- my professional lifetime."
The increasing tax rates could also spell trouble for L.A. Unified's nascent effort to put a different kind of property tax before voters. A parcel tax could be used to pay for ongoing expenses, such as teacher salaries, but it must be approved by a two-thirds margin. The district this year laid off about 2,000 teachers and 750 other employees.
"I think people want to support schools," Cortines said, "but they could say, 'Don't tell me you're raising my taxes on one hand and you're asking for more money in a parcel tax on the other hand.' "
For future construction projects, officials have time to figure out alternative funding sources, said Guy Mehula, chief facilities executive. The options include arranging for builders or banks to front the money. The district would repay them with interest. "Nobody expected this economic meltdown to have this dramatic an impact," Mehula said.
For one school, the crisis was immediate. Oscar De La Hoya Animo Charter High School has been in four different locations in its five years, and was set to occupy a new $25-million facility this fall. Then the state put on hold $6 million needed to finish the job.
"There was no hint of this coming down -- it caught all of us off guard," said John Sun, who develops new schools for Green Dot Public Schools, which operates De La Hoya.
Stopping in midstream would have resulted in potential liability and additional costs, not to mention transporting the entire student body back and forth every day from their Eastside neighborhood to rented temporary quarters in an office complex downtown. L.A. Unified provided the bailout, transferring money from a charter-school project that was not yet able to break ground.
Critics say the decision to increase tax rates, which does not require a vote of the school board, comes at an especially unwelcome moment.
"The liability on individual property owners will go up at precisely the time when property owners can least afford it," said Jon Coupal of the Howard Jarvis Taxpayers Assn.
He predicted that this hit would not be the last and said other government agencies would probably follow suit to manage their own debt. "It's going to cause more foreclosures, and it's going to drag down the California economy," he said.
A year ago, officials used a rosy forecast to justify Measure Q, the school system's fifth bond issue since 1997. An analysis projected that property assessments would grow an average of 6% a year. Experts characterized that as conservative.
Rising home values gave officials confidence that they could keep tax rates relatively low and still pay annual installments on a school-construction debt that is at $8 billion and growing.
The district's analysis failed to adequately consider the possibility of a real estate downturn, even though fewer than 20 years have passed since the prior downturn and history suggests that changes in home values are cyclical.
The median market value in the county peaked for a single-family home at $510,000 in 2006; Then came the crash, lowering that figure by 2008 to $350,700.
Assessed values, on which homeowners are taxed, are more stable. Property taxes can rise only 2% a year for properties that don't change hands, so those values trail a rising market. But even here the unanticipated happened. For 2008, the median assessed value was $337,400; the 2009 value of $325,300 is 3.6% lower.
Among other effects, mothballing Measure Q means charter schools must wait to apply for hundreds of millions of dollars set aside for them. Paying for facilities is a sometimes crippling challenge for these public, independently run schools.
That situation raises the stakes in an ongoing struggle over who will have the right to operate the new campuses still set to open over the next four years. A motion by school board member Yolie Flores Aguilar would let charter schools and other outside operators compete to run these schools. Her proposal is scheduled for an Aug. 25 vote before the Board of Education.
"The only way charters are going to have to get space is to grab the new schools," Cortines said.