School District Bonds and Citizens' Oversight Committees Novato Unified School District Meredith Johnson, Bond Counsel

What is a General Obligation Bond? a constitutionally authorized debt or obligation; voter approved; secured by a pledge of property taxes; subject to constraints in Education Code on borrowing.

How are G.O. Bonds Repaid? Ad Valorem property taxes- “according to value” Unlimited – no exemptions Assessed Value $$$ x 1% = Regular Property Taxes x .00?? = Debt Service on Bonds 3

Historical Framework 1856-1978 Cal. Const. Permits Bonds with 2/3 Approval 1978-1986 Only Issues Authorized Prior to Nov. 1978 1986-2000 Back to 2/3 Approval (Prop. 46) 2000-Present Additional 55% Authorization for Schools & CCD’s Only (Prop. 39) 4

$ Costs of Borrowing Your Car Loan Your Mortgage Small Co. Your Credit Card Your Car Loan Your Mortgage $ Small Co. General Electric Districts Federal Gov’t Bill Gates 5

Procedural Steps District Calls Election Voters Pass at 2/3 or 55% District Appoints C.O.C. Issue Series A Bonds Prioritize and Build Projects C.O.C. Reports to Taxpayers 6

Prop 39 v. Traditional 2/3rds-Considerations Voter approval threshold (2/3 or 55%) Use of proceeds/Prop 39 Construction, reconstruction, rehabilitation, replacement of facilities Acquisition or lease of real property Furnishing or equipping of school facilities Accountability provisions/Prop 39 Bond Project List Citizens’ Oversight Committee Annual Audits Tax Rate Limits/Prop 39

Bonds for Technology Average maturity of bonds may not exceed 120% of useful life of asset financed IRC contains schedule of relevant useful lives

Bond Proceeds are Segregated in Special Building Fund with County Treasurer 9

Education Code Limitations on Issuance Bonding capacity: 2.5% of taxable property in District May be waived by SBE Tax rate maximum: $60 per $100,000 of assessed valuation (Ed. Code 15270(a)) Per Prop. 39 election Both tests performed at time of issuance

A.B. 182 Limits repayment ratio of any bond series to 4:1 Maximum 8% interest rate Capital Appreciation Bonds must be presented to Board as info item prior to meeting at which approved may not exceed 25 years in maturity must be callable after 10 years

Forming and Managing a Bond Oversight Committee

Citizens’ Oversight Committee (Ed. Code Sections 15278-82) 60 days after Election CERTIFIED Minimum 7 Members, WITH ONE EACH: Senior Citizen Taxpayer Ass’n Representative Local Business Representative PTA Member Parent of Student 13

Conflicts of Interest COC may not include as Members: Employees of the District Vendors of the District Contractors of the District Members’ immediate family should also be independent 14

Citizens’ Oversight Committee Brown Act (no closed sessions) Annual Report Oversight & Comment Only; No Control Over Bond Proceeds/Projects/Program 15

Purpose of Committee “To inform the public concerning expenditure of bond revenues.” § 15278(b), Ed. Code 16

How to “Inform Public?” Understand Voter Approved Project List Project List not MFP 2. Get Data from District re: Construction 3. Ask Questions 4. Discuss, Agree at Committee 5. Report 17

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COC’s Scope of Authority Ensuring bond revenues are expended only for construction, reconstruction, rehabilitation, or replacement of school facilities. (Article XIIIA, Section 1(b)(3) of the California Constitution.) Ensuring no funds are used for any teacher and administrative salaries or other school operating expenses. (Article XIIIA, Section 1(b)(3)(A) of the California Constitution.)

Bond Proceeds May be Spent Only: On Qualified (Approved) Projects and NOT on Salaries or Other Operating Expenses § 15278(b) But see A.G. Opin. 04-110 21

COC Activities Review annual, independent financial and performance audits performed by an independent consultant. Inspect school facilities and grounds to ensure that bond revenues are expended in compliance with law. Review any deferred maintenance proposals or plans.

COC Activities (continued) Review District efforts to maximize bond revenues through implementation of cost-saving measures: Professional fees Site preparation Joint use of facilities School site design efficiencies Reusable facility plans

Committee Will Be Supported Administratively by District (But Not With Bond Proceeds) 24

Administrative Assistance to COC District’s Board to provide technical and administrative assistance to COC, such as: Website information posting. Brown Act agendas and minutes. Financial and progress reports. Submit independent financial and performance audits at same time as to District, no later than March 31st. Respond to findings, recommendations and concerns addressed in audits within 3 months.

Debt Management Policy New requirement of all CA public agencies prior to issuing any debt, e.g. G.O. Bonds Policy must include: The purposes for which the proceeds may be used; The types of debt that may be issued; The relationship with the issuer’s capital improvement program; Policy goals; The internal control procedures to ensure that the proceeds are spent for intended use.

From Successful Election to Construction – Bond Issuance Bond Team determines timeline for bond issuance County officials notified Documents drafted, reviewed, redrafted Legal documents brought to Board Offering document printed/circulated Bond rating obtained Bonds are bid or priced Bond closing occurs (2-3 month process) Seek advice of counsel if you incur expenses prior to issuance of bonds

Questions??? 28