How Can California School Districts Finance Their Workforce Housing Projects?
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With the rising cost in home prices and rent throughout California, it has become increasingly difficult for teachers and staff to find affordable housing in the communities that they serve. This problem has caught the eyes of State officials and businesses alike. In September 2016, Senate Bill No. 1413 was signed into law to “facilitate the acquisition, construction, rehabilitation, and preservation of affordable rental housing for teachers and school district employees.” Additionally, Facebook recently pledged $1 billion over the next decade to help produce up to 20,000 in new affordable housing units. While these initiatives should help, some California school and community college districts have begun exploring the feasibility of district-owned workforce housing to attract and retain teachers and staff and financing options to fund the projects.
What Are the Needs?
Before determining what type of financing works best to fund a district’s workforce housing project, it is important for a district to identify its needs first. Does the district already have an existing site to convert or build its housing? How many units does the district anticipate needing? What will this cost and what are the potential sources of funding? The answers to these questions will help a district determine what will best meet their needs.
What Are the Financing Options?
Once a district determines the total project cost, they must decide how to raise the necessary funds. California school districts generally finance workforce housing projects through general obligation bonds, certificates of participation, or a combination of the two.
General obligation bonds require district voters to approve a general obligation bond measure. The bond measure can include other capital projects for the district along with workforce housing or be solely for workforce housing. The debt service on the bonds is repaid by the district’s taxpayers, and all net revenues (rental income less any operating and maintenance costs) may be available for district operations (subject to the district’s bond counsel approval). Generally, general obligation bonds have lower borrowing costs than certificates of participation (assuming the same financing terms).
Alternatively, districts can finance their workforce housing project through certificates of participation. Unlike general obligation bonds, issuing certificates of participation does not require voter approval. The debt service on the certificates can be repaid by rental income but is ultimately backed by a district’s General Fund if rental income is unable to cover the required debt service payments. If net revenues exceed financing costs, the excess money would be available for district operations.