MERCED — Before agreeing to borrow money, savvy consumers know they should find out how much it ultimately will cost to repay the loan and how long they'll be in debt.
Voters should understand the same financial details before deciding whether to support a proposed school bond, but getting that basic data isn't easy.
Bond promoters typically skip the financial specifics when pitching the benefits of fixing up and building schools.
Here's why: sticker shock.
The actual repayment cost of school bonds can be staggering, and the debt can linger for generations.
The Weaver Union School District, for example, wants voters to approve a $9 million bond -- Measure G on Tuesday's ballot.
That loan would end up costing the district's property owners nearly $24.7 million, and they would be paying extra taxes for that debt for 42 years.
How much the Sonora Union High School District's proposed $23 million Measure J bond actually would cost is a mystery. The Modesto Bee was not able to get that financial data from Sonora's superintendent or its bond adviser.
The sketchy financial figures Sonora has made public don't add up, at least not unless Tuolumne County's property values rise substantially every year for the next several decades.
Optimistic property assessment projections are being used by every Northern San Joaquin Valley school district -- Ripon, Escalon, Sonora, Summerville in Tuolumne County, and Delhi and Weaver in Merced County -- seeking school bond approval this election.
Estimates rely on bond advisers
California law requires schools to estimate how much property taxes would have to increase to pay for a proposed bond, and they are supposed to disclose that amount to voters. That figure typically is expressed as a given amount of dollars per $100,000 of assessed valuation.
School officials rely on consultants -- called bond advisers -- to calculate that tax rate, which is supposed to be based on the total assessed value of property within the school district's boundaries.
Those advisers then estimate how much property values will increase over the life of the loan. The higher they think values will rise, the lower the tax rate estimate.
In the Weaver district, for instance, bond advisers Caldwell Flores Winters Inc. of Emeryville have estimated that property owners' bond taxes would not rise above $30 per $100,000 of assessed value.
That means a home or farm in the district with an assessed value of $100,000 would not have to pay more than an extra $30 in property taxes per year for Measure G.
But that tax rate is based on the bullish assumption that Merced County property values essentially will climb 4 percent per year. For that to happen, property worth $100,000 today would have an assessed value of roughly $500,000 by 2055 when the bond debt would be paid off.
The Sonora and Summerville districts used Isom Advisors of Walnut Creek as their bond counsel. Isom did not reveal the math used to calculate the estimated tax rate for their proposed bonds, but Sonora's superintendent said his district's was based on a long-term average growth of about 3.5 percent per year.
How realistic is it to expect property values will rise that much every year?
Sonora and Summerville assessments have been falling, and they dropped an additional 2 percent this year.
Assessed property values have plummeted throughout the region since the housing bubble burst in the 2007. Fortunately for school districts that includes a lot of rural territory, since farm values have not decreased as home values have.
Property owners will have to pay
What happens if that projection is wrong?
Tax rates would rise to cover bond payments.
It doesn't matter what voters are told about estimated costs before the election. Once the bonds are sold, property owners are on the hook for paying them off.
The same is true if school districts aren't able to get the interest rates they expect from lenders. If interest rates rise before the bonds are sold, taxpayers will pick up extra cost.
Weaver expects to sell four school bonds -- in 2013, 2017, 2021 and 2025 -- all with a 5.6 percent interest rate.
The Delhi district's bond adviser, Matt Juhl Darlington and Associates of Chico, estimated the interest rate there would be 5.75 percent.
The expected interest rates for Sonora and Summerville were not provided to The Modesto Bee.
Figuring out how long it would take for these bonds to be paid off hasn't been publicly disclosed by all the districts.
Summerville, for example, supposedly wouldn't start paying off its new $8 million bond until after 2023, when some of its existing bonds are repaid. Interest on its new bond apparently would accrue all the while, which would boost the ultimate repayment cost and lengthen the term.
Repayment schedules are key to figuring out bond costs.
Property owners in San Diego County's Poway Unified School District now wish voters had asked more questions before approving bonds there in 2008.
This summer, it came to light that Poway taxpayers will be forced to pay $981 million during the next 40 years to repay $105 million in school bonds.
As in Summerville, Poway will accrue interest charges but won't make any payments right away. Poway's bonds cannot be refinanced or paid off early, so its property owners are stuck with the nearly $1 billion tab.
Poway's bond advisers reportedly pocketed millions of dollars for setting up that deal.
The bond advisers for Sonora, Summerville and Weaver will get paid only if their bonds are approved by voters. The Modesto Bee couldn't confirm whether that's the case in Delhi.
Some bond opponents think it's wrong for school districts to trust bond funding calculations done by consultants who get paid only if they can convince voters to support a proposed bond.
"They charge $60,000 to $75,000 to run the campaign," Tuolumne County resident Jerry Morrow said about Sonora and Summerville adviser Isom Associates. "It's outrageous for the taxpayers."
Modesto Bee staff writer J.N. Sbranti can be reached at email@example.com or (209) 578-2196.