School bond measures rebound for California's November election

BY SourceMedia | MUNICIPAL | 09/22/22 12:08 PM EDT By Keeley Webster

California will see a resurgence in school bond measures on the ballot this November, breaking a cycle that saw fewer bond requests in the last two statewide elections.

The state's K-12 school and community college districts have 100 general obligation bond measures on the ballot Nov. 8, according to data from the Coalition for Adequate School Housing provided by John Baracy, a C.A.S.H. board member and managing director at Raymond James.

"We are actually on a similar pace for the 2018 GO bond cycle in California, actually a little more in total par," Baracy said.

In 2018, K-14 school districts had 111 general obligation measures totaling $15.6 billion on the ballot, compared to 100 measures totaling $23 billion planned for November's ballot, according to C.A.S.H.

Baracy said he has seen many school districts pushing measures to 2024, but "when all is said and done, 2022 is looking pretty good compared to historical cycles."

Three supersize measures are driving up the volume this November, he said.

The Los Angeles Community College District is asking for $5.3 billion in bonding authority, San Diego Unified School District has $3.2 billion proposed and Long Beach Unified School District is requesting $1.7 billion.

The majority of the school districts are going to voters for smaller amounts, and it's a mix of rural and urban school districts, Baracy said.

That wasn't the case in November 2020, when the number of school bond measures plummeted, according to data from Michael Coleman, creator of CaliforniaCityFinance.com, an online resource for local government finance in California.

There were 60 school bond measures proposed in the 2020general election, according to a Dec. 5, 2020 post-election report posted on Coleman's website.

"This is about half as many as in 2018 and a third of the 184 proposed in 2016," Coleman wrote. "It appears that school boards anticipated this election to be a more difficult one for the higher vote threshold parcel taxes and bonds."

Of the 60 November 2020 measures requesting $13.83 billion, voters passed 48 for $12.17 billion, including $7 billion for the Los Angeles Unified School District, the report said.

There were 35 non-school parcel taxes and GOs on local ballots in November 2020 compared to 52 in November 2018 and 51 in November 2016.

In this June's statewide primary, only 21 local school bond measures were on the ballot, of which 16 passed, according to Coleman's data. The largest measure was $298 million from the Alameda Unified School District, which passed.

Ballot measures placed on the ballot this spring "were historically low probably due to the perfect storm of the stock market crash, COVID-19, and other factors," Baracy said. "November 2020 was also historically low for a presidential election due to COVID-19 and voter surveys done in the spring. June of the gubernatorial season is usually the lowest cycle for GO bond measures, historically."

Gubernatorial and presidential elections in November tend to draw more voters, and are traditionally a more popular time to float bond measures, said Adam Bauer, president and chief executive officer of Fieldman, Rolapp & Associates.

"Typically, there are more on the November ballot than the primary elections held earlier in the year ? except for March 2020, that is where you saw a whole bunch of measures," Bauer said.

The statewide primary in 2020, held on March 3 in conjunction with the presidential primary, drew 121 local school bond measures. Only 44 passed, authorizing $6.62 billion out of the $17.095 billion requested, according to Coleman's data.

Though the numbers for this November seem to be following the historical pattern, some financial advisors and public finance bankers say they are seeing less interest from issuer clients in floating a bond measure.

Many school districts are focused on recovering from COVID-19 and dealing with teacher shortages, so they might not have the bandwidth to deal with all the preparation that goes into floating a bond measure, some sources said. Often they will also poll the electorate earlier in the year to see if voters would support a measure, before moving forward.

"The school districts are consumed with competing priorities," Bauer said. "Public comment sessions went on for long hours ? from masking to vaccines. All those things have taken their attention."

Bauer found that some school districts that had ballot measures planned decided not to go to voters this year, because all of the work involved in adapting to the pandemic made it "difficult to also focus on all it takes to put a GO on the ballot."

There also is no state-level GO bond measure being floated this year, Baracy said.

"The state legislature approved an appropriation from the surplus to fund school facilities in the matching program for this fiscal year, and potentially the next two fiscal years," Baracy said. "Approaching 2024 those discussions could surface again, depending on the financial state of California."

With federal funds and the additional state funding for construction projects, California school districts are generally fiscally healthy, Baracy said.

"School districts are probably in the best position they have been in years, currently, but I don't know if that will continue," he said. "We are seeing healthy fund balances at schools."

Having solid financials does help districts when they are looking to issue bonds, because they can attain better ratings, which bring better interest rates, Baracy said.

The districts are also flush with money from the federal government to pay for COVID-19 adaptations and funding included in California's fiscal 2023 budget from the surplus that went to school districts.

Dale Scott, president of Dale Scott & Co., a California-focused financial advisory firm, said of issuer clients floating bond measures in November, "we are up 50% compared to 2018."

But he added that most of those issuer clients have had them in the works for a few years.

"The passage rate in 2018 was quite high," Scott said. "There was a tendency for some firms to throw everything on the ballot until March 2020."

While federal coronavirus aid helps school districts with immediate needs, facilities costs are longer-range costs for school districts.

"They take longer to plan and to spend for," Bauer said. "The federal money also has deadlines, and requirements that that money be spent in a certain time frame. A lot of the facilities' needs don't meet the federal spending requirements."

The danger is that school districts could be shy cash for construction projects in 2024, Sarah Oberlies Brown, who co-heads California for Stifel, told the Bond Buyer in August.

Inflation is adding to the degree of difficulty districts face in facilities planning, driving up both construction costs and interest rates.

"The cost of doing projects is also much more, so school districts are getting less bang for their buck," Bauer said.

"We are advising our clients to wait for a time that is right for them," Bauer said.

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Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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