Oak Hill Workforce Housing Guarantor Proposal Imperils School Districts’ Future

CST recently reached out to trustees and leadership at Marin County’s K-12 and community college districts to share the urgent letter below alerting them about the latest Oak Hill Workforce Housing proposal, which will make participating school districts responsible for rental property income shortfalls. This imperils schools’ financial future.

We urge Districts to say NO to ANY proposal that places ANY financial risk related to housing projects on the shoulders of Marin’s already burdened educational institutions. It’s all the more important now, when multiple school districts are laying off teachers and cutting programs amid large budget deficits. Novato and Mill Valley are two of the latest; Kentfield is exploring its options; and Miller Creek downsized last year.

Please contact your school board and superintendent with the message: Stick to your educational mandate. Don’t gamble on overpriced housing development with our District’s dollars.

TO: Marin County School Boards & School District Leadership
From: The Coalition of Sensible Taxpayers
Date: March 4, 2025
RE: OAK HILL: SCHOOL DISTRICTS SHOULD NOT BE FINANCIAL GUARANTORS

The Coalition of Sensible Taxpayers urges school districts to REJECT any proposal that makes them financial guarantors of the financially risky Village at Oak Hill Workforce Housing development. School districts’ mission is the education of our children, which could be imperiled by entering complex, risky financial transactions such as this one.

CST is sympathetic to the need for additional housing and the challenges schools face in attracting and retaining high-caliber educators. We would like to see some good options that enable more school staff members to live in our community. But schools should not be in the business of developing housing, owning housing, or providing rental income guarantees to financially backstop the development of housing. That imperils your vital educational mandate.

Please make clear to the Marin County Office of Education and the County of Marin that you decline to assume ANY financial risk related to Oak Hill and therefore will opt out of any plan that saddles your District with such a provision.

Background: The Village at Oak Hill Workforce Housing project, a proposed 135-unit development near San Quentin, was met with great enthusiasm when it was announced in 2022. The concept was to offer below-market rentals as a way to recruit and retain low and moderate income public employees, with 75% of the apartments reserved for schools and 25% for the County. A November 8, 2022 Marin County Administrator’s report to the Board of Supervisors stated that Oak Hill was expected be “cost neutral” to both the County and Marin School Districts. With those assurances, the Supervisors subsequently approved a memorandum of understanding (MOU) to move forward with the project.

A Joint Powers Authority (Marin County Public Financing Authority) consisting of the County of Marin and Marin County Office of Education was formed to facilitate the development and then own and operate the buildings. A developer, “Education Housing Partners”, will be responsible for the procuring financing and managing the construction. Upon completion, EHP exits with a $4.9 million immediate fee; $1 million deferred fee; and no additional ongoing financial exposure.

Deteriorating Financial Outlook: The County’s initial “no risk, big reward” projection has proven wildly unrealistic. The JPA’s January 16, 2025 budget update shows Oak Hill facing a daunting $17.4 million funding shortfall resulting from rising development costs (likely to approach or exceed $900,000 per unit to build what are mostly 1-bedroom apartments on $1/year state-owned land); and interest rates that have risen sharply. A further Oak Hill budget update is due in April.

Guarantor Program Shifts Risk to Schools: With financially astute bond buyers leery of loaning to Oak Hill, the JPA proposes to reduce that risk (and thus the interest rate on the loan) by requiring participating school districts to become financial guarantors of payments due to bondholders. Districts that opt in to Oak Hill will be financially responsible, over the 30-35 year bond term, for rental income shortfalls at the apartment units that they contractually commit to fill with their eligible employees. Rental income shortfalls can result from nonpayment of rent, vacancies, or rent reductions needed to fill unoccupied units.

Guarantees Likely to be Triggered: There has been no publicly-available market study for Oak Hill that demonstrates that there is a sufficient pool of income-qualified school district applicants who are willing and able to pay the target rents. Based on our understanding of the local market, we believe it’s very possible that there will not be enough employees interested in occupying these units at this location and at the proposed rental price point that’s sufficient to pay bondholders. The rental income guarantees would thus be triggered, meaning that school districts would be subsidizing tenants, possibly even some who are not school employees. The contemplated proposal would require a school district to “expense” (pay) any rental shortfall amount due under its guarantor obligation in the next fiscal year.

Big Decision. Small Time: MCPFA wants school districts to “opt in” to the Oak Hill plan in March 2025, so as to issue bonds in June and break ground this season. This is a serious decision. Once committed, a school district cannot exit its Oak Hill obligations unless a willing, “substitute district” steps up. At least one school district has already said that it will not participate in the Oak Hill program.

Unacceptable Risk: Agreeing to be financial guarantors could place a significant strain on school districts, many of which are already struggling and none of which can confidently project their financial condition throughout the coming 30-35 years.

Lessons from Past Projects: In 2018, Sonoma State University poured $42 million into the 92-unit Marina Crossing Apartments, which were intended to provide housing for income-eligible employees. Since then Marina Crossing has struggled financially due to high rental rates necessary to cover the development’s cost and a living situation that was unappealing to faculty and staff. With early vacancies at 85%, the project had to open to the public in order to fill units. There have been ongoing vacancies and less than 20% of the units are occupied by university employees today. The resultant losses contributed to recent, major budget cuts university-wide.

The 342-unit Serenity at Larkspur project was intended to provide more affordable middle-income housing. Besides being hammered by an eviction moratorium during the pandemic and significant continuing nonpayment of rents, Serenity is currently unable to fill its apartments with income-qualified tenants willing and able to pay the assigned rent. Serenity is now failing to meet its required debt payments while filling nearly half the apartments with higher income tenants who benefit from taxpayer-subsidized rents; another 10% remain vacant.

Recommendation: To protect Marin County school districts from undue financial strain and uncertainty, the Coalition of Sensible Taxpayers recommends that all Marin County School Districts opt out of the current Village at Oak Hill proposal and any future proposal that requires them to assume housing-related financial risk.