Propositions AA and EE are second mortgages on your home

Brian Brady Brian Brady Leave a Comment

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Thanks to the thorough analysis from the San Diego County Taxpayers Association, we see that Proposition AA (which affects property owners in Carlsbad, Encinitas, Cardiff, Olivenhain, Leucadia, Solana Beach, Rancho Santa Fe, Del Mar, and parts of Carmel Valley) would add $25 per $100,000 of assessed valuation to a property tax bill and that Proposition EE ( which affects homeowners in Oceanside, Carlsbad, Encinitas, Cardiff, Olivenhain, Leucadia, Solana Beach, Rancho Santa Fe, Del Mar, and parts of Carmel Valley) would add the same.  The San Diego County Taxpayers Association is endorsing this thirty-year loan (which is what a bond is), collateralized by the collection of taxes on real property.  That, my friends, is a residential mortgage.

While median home prices in this coastal area are strong, the median assessed valuation (which differs from market valuation) is probably around $300,000.  Each property will differ so each property owner’s encumbrance will be different as well.  I’m going to use the median price for my analysis because it affects at least half of the property owners impacted by both Prop AA and Prop EE.  The financial affect then, of passing Propositions AA and EE, for at least half the property owners, is a minimum of $150/year or about $12.50/month.

That translates to the equivalent of about a $3,000 second mortgage.  That’s not a lot of money.  Why am I so worked up about this?

Three reasons:  (1) rewarding negligence (2) financing eventual obsolescence,  and (3) tax creep

Rewarding Negligence:  The lion’s share of both bond proceeds are earmarked for construction and maintenance.  But those issues were budget items for the past 20 years.  Current and previous school district boards then, willfully raided the budgeted construction and maintenance buckets to fill up other buckets.  Stated differently, union employment and pension contracts were enhanced (most likely for campaign contributions) at the expense of fixing roofs, pipes, and toilets.  It’s hard to be a board member in a District which has a long history of an activist labor union but, in this case, the votes were traded for toilets.

Financing Planned Obsolescence:  About 20% of the bond proceeds are for structural technology upgrades.  Financing technology, over thirty years, is a recipe for disaster.  If we adopted this model three decades ago, we’d be making our final payments on our Trash 80s today. technology upgrades really shouldn’t be financed beyond 3-7 years because the equipment quickly becomes obsolete.  Construction can be financed for 30 years but maintenance shouldn’t be financed beyond ten.  This is why home equity loans generally have ten year terms on them.  If these bonds had a ten-year maturity, the payment (for the median home in the Districts) then jumps from $12.50/month to $30/month.  Suddenly, this benign enough proposition is getting to be a… burden.

Tax Creep:  A few bucks a month here, a few bucks a month there, and the next thing you know, The MCC and SDUHS Districts start looking like Camden County, NJ.  As a product of Cherry Hill, NJ public schools, I can tell you that a generation of retirees compromised retirement security for the perceived value of “quality” education for their kids.  The labor unions held that generation hostage in the 70s and the high property taxes restricted Camden County property values thirty years later (while nearby Atlantic County boomed).

The SDCTA rightfully points out that Del Mar Union School District bond finances iPads over 30 years; it opposes that proposition.  But the analyses it did, on Propositions AA and EE, ignore that the amortizations are intentionally lengthened to obfuscate negligence and planned obsolescence.

If you don’t mind signing for a $3,000 30-year mortgage, for improvements which will need to be fixed in ten years, vote for Propositions AA and EE.  If you think the era of predatory lending should end, vote against it, even if the builder and  mortgage broker tell you that you can afford it.

I am offering analyses which arrive at a different conclusions than the SDCTA offers voters.  I’ve asked its Vice-President, to refute my claims on their merit.  I think that taxpayers have other options than to sign for a second mortgage on their properties.  I’m interested why the SDCTA thinks taxpayers should sign that second mortgage.

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