Parcel Taxes and Bonds Demystified | ED100 (2024)

How do local taxes for schools work?

The State of California persistently funds public education at a low level of effort compared to other states and countries. But there are ways for school districts and local voters to do something about it.

Setting aside bake sales, there are basically two significant mechanisms: parcel taxes and bonds. Both require public support, expressed through voting. They have different purposes, as this post will explain, and the rules to pass them have changed in recent years.

Why do we need local options?

The rules are easier to grasp with a little history. Prior to 1978, local schools were funded locally by school districts. If a school district needed more money to run schools, the local school board had the authority to raise the property tax rate for local homeowners, landlords and businesses. If local voters didn't like it, they had the authority to choose different school board members at the next election.

Different disticts had different tax rates, and also different levels of property value. Wealthy communities, with lots of property value, could generate significant funds with low rates. Poorer communities couldn't. The system was very unequal. Unavoidably, it created large disparities in expenditures per pupil from one district to the next.

Voters can support local funding for schools through parcel taxes and bond measures.

In the landmark case Serrano v. Priest, the California Supreme Court ruled that this system of funding schools was more than unfair — it was unconstitutional. As part of the settlement in 1972, property tax rates and per pupil expenditures were equalized through a system of revenue limits. For the purposes of understanding parcel taxes and bonds, what you need to know is that as a result of Serrano v. Priest, the State of California began assuming control of the flow of dollars to local schools.

In 1978, California voters continued the trend by passing Proposition 13, an initiative that amended the state constitution and eliminated the power of school boards to levy ad valorem taxes — taxes based on the value of property.

Ok, ok…
Yes, there are actually two other ways, but little used: Mello-Roos taxes and sales taxes. As of this writing, we know of only one district in California, San Francisco Unified, that has passed a sales tax to benefit schools. CalTax keeps a running list each year.

With the door closed to property taxes, two local tax options remain for California communities to support their schools:

• Support school facilities through local school bonds
• Support school operations and staff through parcel taxes.

Let's start with the facilities.

What is a school bond?

A local school bond measure generates funds for repair, construction or replacement of school facilities. In a bond election, voters decide whether to authorize a school district to issue bonds in a specified amount. Investors who buy the bonds are paid back, with interest, using funds collected through property taxes. Passing a bond measure authorizes these taxes.

Prior to 2001, communities could pass a local bond measure only with a 2/3 supermajority of votes. Few districts were able to meet this threshold, so few bond measures passed. Meanwhile, schools in California were falling into a dismal state of disrepair. In November 2000, voters approved Proposition 39. Prop 39 stipulated requirements that, if met by districts, would reduce the threshold to pass a bond measure from the previous 2/3 supermajority to a 55% supermajority. Prop 39 bond measures require:

• Annual financial and performance audits
• That no proceeds be used for salaries or operating expenses
• That districts make “reasonably equivalent” facilities available to public charter schools upon request
• Citizens’ oversight committees
• The bond proposal be placed on the ballot of a statewide primary or general election, a regularly scheduled local election or a statewide special election
• The tax rates levied do not exceed certain maximums

What is a parcel tax?

Parcel taxes measures may be passed by a majority vote if placed on the ballot as an initiative.

Districts can tax the owners of property within a school district through the use of a parcel tax. A parcel tax is a non-ad valorem tax, which means it is not based on the value of the property. The tax is most often assessed as a flat fee on each parcel, but it can also be assessed on a per square footage basis.

Parcel taxes are used for general district operating expenses. They supplement state funding for programs that are important to a community. Parcel taxes require 2/3 voter approval to pass if they are placed on the ballot by a school board, city, or other government entity. In late 2021, the California Supreme Court affirmed that parcel taxes may be passed by a simple majority of voters if the measure is placed on the local ballot by voters using the initiative process. (Learn more.)

The language in a ballot measure specifies how the proceeds will be used and the duration of the tax. Most parcel taxes are levied for a specific period of time - typically 3-7 years, after which they automatically expire, or sunset. Some districts have been successful in passing parcel taxes without a sunset provision.

Citizen oversight is not a legal stipulation for passing a parcel tax, but many districts include the creation of an oversight committee in the ballot language. This assures taxpayers that the money raised will be spent in accordance with the voter-approved language. With or without citizen oversight, school district Chief Business Officials are required to give a public update to the school board each year on the amount of funds generated by the tax and how the funds are being spent.

What is the difference between a parcel tax and a bond?

Both parcel taxes and bonds generate revenue that is controlled by locally elected school boards in accordance with voter-approved ballot language. The State has no control over how the money is spent. Revenue from each tax is used for specific purposes that are very different.

The amount of tax that property owners pay for a bond depends on the current assessed value of the property. The amount of tax that property owners pay for a parcel tax usually depends on the number of parcels they own.

The easiest way to remember the difference between the two is that Parcel taxes are for Programs and People. Bonds are for Buildings.

Parcel taxes are for Programs and People.
Bonds are for Buildings.

Is there a downside to parcel taxes?

Opponents of local funding measures like parcel taxes and bonds make several broad arguments against them.

Parcel taxes are, by nature, regressive. They don't vary according to a taxpayer's wealth, so they disproportionately burden taxpayers that are less able to pay. They generally make no distinction between the use of the parcel, either. Low-income housing and high-value commerial property are taxed the same.

As a possible solution, some districts have assessed the tax on a per square footage basis, risking the opposition of large property owners and voter confusion. Both are reasons that could cause the tax to fail.

Some districts tried to tax residential and non-residential parcels at different rates. Those proposals were overturned in the Borikas case. The court ruled that these taxes must apply “uniformly to all taxpayers or all real property”. So, for now at least, it is not permissible to apply different tax rates for different classes of properties.

Other arguments against parcel taxes call for increased transparency about the specifics of the tax. School districts do not control how items appear on the tax bill, but they can keep their websites up to date and make this information easily accessible to anyone who seeks it. Things like how to qualify for exemptions, if available, and when the measure expires could be listed prominently. Exempting small parcels and greater government oversight are other ways that have been proposed to improve the tax.

Is there a downside to bond measures?

Opponents of bond measures sometimes contend that the average voter may not understand that issuing bonds incurs indebtedness, and the debts are paid through property taxes. That’s not so hard to understand.

Where it gets more complicated is in the controversial “pay to play” practices sometimes associated with bond sales. A construction firm, for instance, may make a donation to a campaign to pass a bond because that firm would like to bid on and may ultimately receive work in the district if the bond passes. The same can be applied to bond underwriters who donate to campaigns with the possibility of becoming the underwriter for the sale of the bonds.

One argument in opposition that applies to both bonds and parcel taxes has to do with the use of public funds. The public funds argument boils down to this: School district monies are public funds. California law prohibits the use of public funds or resources for partisan campaigning. However, and this is where it gets wonky, there are ways that districts can legally participate in informing their community. Polls and other research and analysis can be paid for out of district monies as long as the information is used to impartially inform voters of the facts in order to help them make an informed decision when it is time to vote.

Opponents argue that, though this practice is legal, it is questionable. The information gathered to provide impartial information can also be used by districts to inform the campaign of voter preferences and tolerances that will ultimately determine the specifics of the measure.

Is there an alternative?

Not really. Proposition 13 amended the constitution of the state. It blocks taxes based on the value of a property, so the options are limited. Done well, bonds and parcel taxes can be a successful, community-supported tool in a box that has no other tools available.

To try or not to try

So now that you know what you know — good and bad — the question remains about whether to try to pass a revenue measure in your community. Keep this in mind as you decide: despite the possible downsides, communities throughout the state place local funding measures on ballots every year. Here's the 2022 list.

Nobody likes paying taxes, but support kids and schools is an act of love and commitment. School programs are vital to kids, families, and thriving communities. As long as parcel taxes and bonds remain the only two realistic options for school districts to generate additional money for schools, school districts must remain mindful of the arguments against and do what they can to build and maintain voter confidence.

Denise Jennison joined the Ed100 team in 2017 to help readers understand California's school system with particular focus on school boards. Denise has been a member of the school board in the San Ramon Valley Unified School District since 2010. She has served as both the president and treasurer of the Contra Costa County School Boards Association as well as serving four years on the California State PTA Board of Managers. The daughter of two public school educators, Denise attended California public schools from elementary school through the University of California. All four of Denise’s sons attended and graduated from San Ramon Valley Unified School District schools. A credentialed teacher, Denise lives in Danville with her husband, dogs and occasionally returning sons.

This post was updated in January 2024.