Friday, August 21, 2009


by smf & LAUSD FSD staff for 4LAKids


LAUSD considers property tax increase: District could hike taxes without voter approval to help pay off school construction bonds

Los Angeles Unified School District officials want to raise property taxes to help repay school bonds. The article goes on to cite: "little-known legal protections for bond holders. If revenues from property taxes do not cover installment payments for bond debt, the district can raise tax rates — even if they rise above projections."

  • 'LAUSD officials' would rather undergo root canals from Taliban dental students than raise taxes.

  • 'LAUSD officials' have no say in raising taxes or tax rates - the county assessor sets tax rates.
  • Similar stuff is happening in every jurisdiction in California with bonded indebtedness, from Alpine County to Yucaipa.

August 21, 2009 --There have been some interesting things said and written about the LAUSD school construction program of late – and I would like to pass along the following info.

Warning: It's boring …and it really isn't news.

1) The money for school construction and modernization and the money used to pay teachers is two different pots of money.

a) TAXES pay teachers and operate schools day to day, this is called the GENERAL FUND. Taxes are money raised and spent in the here and now.

i) Your tax dollar pays Johnny's teacher.

(1) This month's taxes pay Johnny's teacher this month

(2) Next month's taxes pay Johnny's teacher next month.

b) BONDS pay for school construction. Bonds are money borrowed against FUTURE TAX COLLECTION.

i) The voters vote for the bonds

ii) …the money is borrowed NOW

iii) …and a promise is made to pay the money back from future property tax collections

iv) …and it's paid back over time, WITH INTEREST. It's called credit.

2) It would be LEGAL to use General Funds to pay for school construction - if school districts had the cash they would do this. (Wouldn't you rather buy a house with cash than get a mortgage?)

a) It is ILLEGAL to use bond funds to pay teachers. The reason we don't do this isn't because of some high concept ethical breach of fiduciary responsibility - it's because School Board Members and superintendents would fill prisons for trying!
      Q: O.K. Scott, What's the downside you ask?
     A: Well, the board members & supes would go to jail AND the school district (ie: the teachers) would have to pay he money back!

3) The economy has gone bad AND people's property values have gone down - but the bond debt still exists and the money borrowed in the school bonds (alphabetically named BB, K, TR and Y) needs to be paid back with interest.

a) Property values going DOWN and the debt staying THE SAME means that the tax rate - the amount each property owner owes based on the value of their property must go UP; it's more physics than economics. The school board doesn't set the tax rate, the county tax assessor's office doesn't really set it either …they only compute it.

b) The MARKET sets the tax rate.

Columnists, writers and radio talk show hosts and a smattering of so called activists from the right wing of our ruptured duck have made much of this …citing secret provisions in law or little known legal mumbo jumbo - with a smattering of smoke and mirrors. Their thinking makes the DiVinci Code look like Dick and Jane.

  • There is no mumbo-jumbo.
  • There is no secret legal language.
  • No smoke and no mirrors, no conspiracy of school board members and/or faceless District bureaucrats ripping anyone off. (Personally I'd be delighted to report this!)

There is the simplest law in play here: The Law of Cause and Effect …and its hidden codicil:The Law of Unintended Consequences. And the promise to pay back money borrowed with interest …what were we thinking?

For the visual learner, here's the PowerPoint.

Deferred Financing-BOC Presentation Aug 19 2009-FINAL



Extra Credit for Sliderule Jockeys: The Value of School Facilities: Evidence from a Dynamic Regression Discontinuity Design

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