We Need Facilities Upgrades. How Do We Pay For Them?

This is the (400) million dollar question.

In this post, I am going to give a crude and oversimplified explanation of school finances, and why we live in a multi-million dollar community but have public schools that look like they haven’t seen a repair since 1961.

State Supreme Court Says It’s Unfair to Allow Districts to Use Local Revenues

In the early 70s, the California Supreme Court decided a case known as Serrano v. Priest II. The Court found that the state’s education finance scheme (based on local revenue generated by the value of property) violated the equal protection clause of the California constitution. The scheme created massive disparities between high- and low- income areas. The Supreme Court required the state to reduce funding disparities among districts within $100 per pupil.

California Voters Pass Prop 13 to Limit Property Tax Increases

Then in 1978, Proposition 13 passed. It’s a property tax limitation initiative adopted by the voters. It means that people who bought their homes decades ago pay far lower property taxes than people who bought homes more recently. In other states, property taxes are reassessed as home values increase. That is not the case in California. If you bought your home in 1955 for $50,000, you’re paying about $500 in property taxes annually. If you buy a starter home in 2022 for $1.5 million, you’re paying a little over $15,000 in property taxes annually.

Districts Are Funded Via State and Local Taxes Using A Formula

The County collects our property taxes, and combined with our state income taxes (which are quite high in Palos Verdes), the State redistributes these revenues to school districts based on a formula that is supposed to send more money to low-income areas. The per pupil funding received by our district is MUCH lower than the per pupil finding received by other districts like LAUSD, for example. In a nutshell, Palos Verdes residents pay a lot more in taxes, and receive a lot less for our public schools.

**Note, if we reach a certain level of property tax revenue, we become a “basic aid district” and no longer have to rely on state allocation. We can keep our property taxes and use those to fund our schools. It’s hard for us to get there because we lack commercial revenue and a significant portion of our real estate has not been reassessed for decades.

Attempts to Pass a Bond

The District does not have the funds in the bank to pay for the necessary facilities upgrades. In March 2020, the District attempted to pass Measure PV, an approximately $400 million bond to upgrade facilities. It failed by a significant margin: 38% Yes to 61% No. The bond would have amounted to roughly $38 per $100,000 in assessed value. Using the earlier example, it would cost about $570 per year for a family living in a $1,500,000 starter home. This amount would be barely noticeable for most homeowners. So why didn’t it pass?

The demographics in our community don’t support a school facilities bond. Only about 1/10 of voters have children in the district. Our population skews older, and most active voters’ kids have aged out of school. Further, we are already heavily taxed in California on our income, and asking people to willingly increase their taxes is a deeply unpopular proposition. Especially when there is a lack of trust and lack of oversight, which Measure PV also suffered from.

So why are we thinking about putting another bond on the table? Because the “traditional” and commonly used financing options require that the District “match” state funds for facilities. This is most commonly done using a school bond. For a number of years, school bonds passed easily and have been used by nearby districts to fund major improvements (see Measure S in Hermosa Beach, Measure Q in Redondo Beach, Measure C and Measure EE in Manhattan Beach).

While some beautiful facilities have been built using these funds, community members have been frustrated by the lack of oversight, the alleged “misuse” of funds, and the price tag. Bonds are repaid by taxpayers with interest over several decades. In 2020, school bond measures that had previously passed easily began to fail. According to some, this was due in part to cynicism from voters that more money is needed when the state budget is at record levels, concerns about higher taxes, and the cost of living in California generally, and sensitivity to proposals that will raise the cost of living.

After the last two years of school closures and the demonization of parents, that cynicism has only grown. The state continues to boast about a record surplus. Why are districts like Palos Verdes still struggling to patch and repair our crumbling buildings? Why do we need to pay more taxes to have habitable basic necessities for our students? Why can’t we retain more of the taxes we already pay in Palos Verdes to fix up our facilities?

We Need to Get Creative

Palos Verdes is not the first district with of its kind that has struggled to pass a bond. Public school districts in Piedmont, Lafayette, and Manhattan Beach are exploring creative facilities funding options, including working on facilities endowments. An endowment would be voluntary, and allow donors to contribute tax-deductible funds.

In addition to creative options like an endowment, we need to explore our legal options in terms of retaining funding necessary for health and safety purposes. If we have a red-tag situation and urgently need major repairs in order to use a building, what are our options? It would seem reasonable for the district to retain more local tax revenues to make its facilities habitable, rather than allowing the state to redistribute them to other districts. A legal analysis of the district’s options here are needed.

Further, the state policy needs to change. If there is no legal avenue for our district to retain our local tax revenues in order to provide safe and habitable buildings for our children, there should be. We should push for legislation to ensure this is possible. It would also be nice if we could cut back on some of the ridiculous red tape in the school construction process, but that is an entirely different post, and we live in California so I won’t hold my breath.

I do not claim to have the answers to the facilities crisis our district faces. I do know that relying on another bond, when the last bond failed by such a significant margin, is not a wise path. We need to explore other avenues and exhaust all options before asking our community to voluntarily tax themselves more than they already pay.