What is Statutory Bonding Capacity?
/Bonding capacity is a statutory limit on the amount of general obligation bonds that can be issued at any given point. Bonding capacity is calculated by multiplying a district’s current assessed valuation (“AV”) by 2.50%, if a community college district or unified school district or by 1.25%, if an elementary or high school district. From here, the amount of general obligation bonds outstanding is subtracted to arrive at a district’s available bonding capacity. In addition to available bonding capacity, the amount of general obligation bonds that a district can issue is also restricted by tax rate limitations and available bond authorization. Below is an example of a bonding capacity calculation:
Let’s assume XYZ Unified School District (the “District”) has $50 million in remaining general obligation bond authorization previously approved by its voters. Based on the bonding capacity calculation above, the District can currently issue $15 million of its $50 million remaining authorization, notwithstanding any tax rate limitation the District may have. The District’s available bonding capacity will change as AV grows or declines each year and as outstanding bonds are repaid.
If the District determines that their current need exceeds what they can currently access, they can apply for a bonding capacity waiver from the California Department of Education. If approved, the waiver would allow the District to issue general obligation bonds that otherwise would exceed their available bonding capacity. Waivers are typically approved and the process takes approximately three to four months.
Assembly Bill No. 48, which is currently on the March 2020 ballot, proposes an increase to the statutory debt limit factor for California school and community college districts. If approved by voters, the statutory limit for community college districts and unified school districts will increase from 2.50% to 4.00% and the limit for elementary and high school districts will increase from 1.25% to 2.00%.