Village I school taxes decline

Thousands of Northeast Modesto homeowners will pay lower property taxes this year because school officials have been able to lower the interest rate and pay down the debt owed on campuses built in Village I.

The Village I development’s controversial school taxes – called Mello-Roos taxes – will decline by $115 to $145 per home this year because of the refinancing deal.

So rather than paying $390 in extra property taxes, Village I’s 5,157 homeowners will pay $245 to $275 annually for the schools.

Those extra taxes have been in dispute for years, based on different interpretations of how much the schools were allowed to charge Village I homeowners.

Modesto city officials and those representing the building industry contend Modesto City Schools and the Sylvan Unified School District violated a 1994 agreement, and thus overtaxed homeowners by millions of dollars.

The recently announced tax reduction, however, has nothing to do with that dispute. It results from refinancing of the school districts’ outstanding loans to substantially lower interest rates, plus the use of unspent taxes to reduce the total debt.

The districts still owe $9,565,000 for construction of Freedom and Sanders elementary schools, Savage Middle School and Enochs High School. It will take until 2034 to finally pay off that debt, which was refinanced last month with bonds that have an interest rate of about 3.5 percent.

If that debt hadn’t been refinanced, the loans would have cost Village I taxpayers an additional $38.2 million to pay off. But thanks in great part to paying down the debt with $11.2 million in unspent taxes, only an additional $12.8 million will be needed to pay it off.

That’s a savings of $25.4 million.

“This board has been analyzing the options for debt reduction for taxpayer savings for years. Our timing was good in that we went to the market in June when demand for municipal bonds was strong and supply low,” explained George Rawe, president of the Schools Infrastructure Financing Agency, which oversees funding for Modesto school construction.

That agency also refinanced $9,005,000 in bonds for construction of Dieterich Elementary School and expansion of Prescott Junior High School in the Stanislaus Union School District. And it refinanced $5,470,000 in bonds for Sylvan’s Crossroads Elementary School.

Homeowners in those Stanislaus and Sylvan Mello-Roos tax districts, however, will not have their taxes reduced.

The Village I Mello-Roos taxing district is unique because it was created based on a mitigation agreement between Modesto City Schools, the Sylvan Union School District, the city of Modesto and the Building Industry Association.

That 1994 agreement was supposed to limit Village I homeowners’ share of school construction costs to $52.7 million, which was expected to cover the building of five campuses. But the four schools that ended up being built cost more than $169 million.

The agreement also was supposed to assure that Village I’s tax burden would be reduced if state funds were received for school construction. But that didn’t happen.

Instead, school officials from 1994 through 2009 routinely raised Village I’s taxes by 2 percent per year.

The Modesto Bee raised questions about how those taxes were collected and the way those funds were spent in a series of stories in 2010.

The resulting controversy prompted school officials to freeze Village I’s tax rate at the 2010 level.

School officials also agreed to limit the extra tax burden on Village I homeowners to 23 years for each home, depending on when it was built.

In 2012, the city of Modesto insisted on a legal review into whether those Village I school taxes were in line with their 1994 agreement. That nonbinding legal opinion determined school officials violated that agreement and taxed Village I homeowners millions more than allowed.

But the school districts insisted they “interpreted and implemented the 1994 mitigation agreement in good faith, using their best judgment and in public view.”

There were discussions by city officials two years ago about whether to challenge the schools in court, but that didn’t happen.

Past stories about the Village I Mello-Roos property tax dispute are posted at www.modbee.com/villageI .