Would you sign a preliminary agreement for a 40-year major financial commitment to backstop a risky business outside your expertise? Would you do it without seeing any of the key information until just before the final agreement must be signed? That’s what proponents of the 135-unit Oak Hill workforce housing project at San Quentin are aggressively pressing Marin’s school districts to do.
Marin schools are struggling amid declining enrollment, higher staffing costs, teacher layoffs and looming funding cuts. It’s a horrible time for school districts to be tossed a hot potato obligation outside their educational mandate and expertise. It’s unconscionable that they’re being pressured by leaders at Marin County and its Office of Education.
Those two entities formed a joint-powers authority to develop Oak Hill based on 2022 representations that there’d be no fiscal impact. This January, it revealed a funding shortfall of approximately $17.4 million, which it attributes to higher construction and financing costs.
Sophisticated bond investors, concerned that Oak Hill might not fully repay interest and principal, want insurance in return for a more affordable interest rate. So the JPA is pushing school districts to sign a “guarantor” agreement making them financially responsible for rental revenue shortfalls for a specified number of apartment units over 40 years. This shifts risk from large investors with expertise to evaluate complex financial transactions to school district leaders who don’t. They do not know what rent levels are needed to cover Oak Hill’s obligations or if that’s attractive to employees.
January’s shortfall revelation was underpinned by a rental market analysis and “pro forma” budget of costs to build and operate Oak Hill. The JPA hasn’t disclosed those key documents. In responding to a Public Records Act request from the Coalition of Sensible Taxpayers, an email from the JPA’s legal counsel asserts that the January 2025 pro forma budget is exempt from disclosure.
A district assuming Oak Hill’s financial risk must understand why the numbers don’t pencil out. That’s key to evaluating the credibility of a future revised pro forma intended to show a balanced budget.
Meanwhile, Oak Hill leadership is leaning on school districts to agendize its presentation, which was one-sided and promotional, and immediately pass a resolution to complete a bond-guarantee agreement later this spring. Proponents want schools to take this “first step” without seeing detailed financial analysis and despite a term sheet warning of potentially dire consequences.
The JPA aims to secure school commitments by April 30 to backstop 101 total apartments. The seemingly innocuous first step resolution creates forward momentum. I expect it will lead to tremendous pressure not to exit later, potentially collapsing the entire project.
Breaking ground this construction season requires binding rental guarantor commitments from districts soon after the final pro forma budget is completed. The JPA recently reported a further delay of the final project budget’s completion until at least June (per Executive Director Matthew Hymel’s report at the JPA’s April 4 meeting). If it is breaking ground this season, districts won’t have much time to get their own independent analyses of Oak Hill’s assumptions and survey their employees’ interest in rentals at the specific location and rental price points.
Each guarantor would be financially liable for vacancies, delinquencies and nonpayment.
School districts must consult accountants, bond experts and rental-market experts ASAP to independently assess how much the guarantee – which could create a sizable contingent liability — negatively impacts future funding available for teachers and building improvements.
Marin districts already face cuts and deficits. This includes MCOE, which provides critical services to kids in need and anticipates “deficit funding could continue for the foreseeable future.” Rental guarantees, if triggered, add to the challenges of sustaining educational programs.
Parents should object to districts signing rental guarantor programs. San Rafael will consider guaranteeing Oak Hill at its April 21 trustee meeting. Novato already took the first step toward support, despite already having budget problems. Parents must protest the further risks Oak Hill presents to educational programs.
Taxpayers and their advocates should vow to oppose future tax measures for districts negatively impacted by this avoidable risk. School boards should just say no to any guarantor program commitment.
County supervisors must seriously consider the possibility that the county will have to step up financially if MCOE and other school districts stumble.
No school district should be asked to guarantee Oak Hill. The JPA should desist.
Marin resident Mimi Willard is a chartered financial analyst and president of the Coalition of Sensible Taxpayers.
