The Irvine Company has been working in concert with K-12 school districts on the Irvine Ranch for nearly four decades. In Orange, The Irvine Company has collaborated with the Orange Unified School District to complete a school mitigation agreement for the new residential neighborhoods planned for Santiago Hills II and the rest of the community east of Orange.

All of The Irvine Company's school agreements have a financing component to cover 100% of the facilities costs to serve the students projected from its new communities. To accomplish this, The Irvine Company will work with OUSD to establish a Community Facilities District to assess new homes in the Santiago Hills II and the new neighborhoods east of Orange.

Many builders simply pay school impact fees, or developer fees, and let school districts handle the planning and state financing. However, The Irvine Company's school funding programs always have been above and beyond the statutory requirements. The agreement with OUSD provides $47 million over and above the $29 million in developer fees that would be legally required. The entire $76 million will be available to OUSD to utilize as needed.

In addition, The Irvine Company brings the expertise and knowledge about financing programs, state school construction funding and land use planning as a resource to the school district. We will work with the district and state legislators to help secure additional funding.

Good schools are a critical element of a strong community. Schools, along with parks are often the focal point of a community, and people who buy homes on the Irvine Ranch expect quality schools. Just as it takes careful, thoughtful planning to create a successful community, it also takes the same consideration to create great schools.

The Irvine Company takes great pride in its track record of excellent schools and strong commitment to quality education, and is pleased to continue these traditions with the Orange Unified School District.

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The recent study on enrollment projections confirms what we all suspected - student population is expected to grow. Over the next 7 years the district is projected to grow by 2,163 students - primarily in secondary schools. The study suggests that the district may need up to 4-5 new elementary schools, one new middle school and two new high schools at maturity.

We understand there are limited opportunities for new school sites in the district. Potential school sites mentioned in the study are in Santiago Hills II and East Orange. However, there are some constraints to consider:

• Less Land
  90% of the land within the Orange sphere of influence is open space. The Irvine Company has reserved only 10% of its property for homes.
• Fewer Homes
  Where the East Orange General Plan once envisioned 12,000 homes and extensive commercial development, there will be fewer than 4,000 homes. Fewer homes mean fewer students. The Orange Unified School District generation rates predict the new communities east of Orange will generate a maximum of 1,425 K-12 students. That is less than two-thirds of previous projections.

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"Student generation rates" are one of the critical components of school planning. The data is used to determine if and when new school facilities will be needed.

When analyzing the impacts of development, student generation rates are used to project the number of students that will eventually be part of a new community. The housing types planned for a community, including detached, attached and apartments, are compared to similar homes in existing neighborhoods to determine how many students will reside in the new community. Next, the number of years it takes for a community to be built out is calculated with the number of students from the housing types. This determines how many students from each grade level will be generated over the build-out of the new community.

In Orange, the school district hired a firm that specializes in demographic research to study the district and estimate the number of students that will be generated by housing currently under construction and future residential development. The firm studied a large sample of existing homes within the last five years in the district, and included all housing that will be built east of Orange.

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By the time the new communities of Santiago Hills II and East Orange are completed in eight to ten years, student projections indicate approximately 1,169 K-8 students and 350 high school students will be generated.

To accommodate the new students, the school mitigation agreement with OUSD includes a $20-million K-8 school to be built on 15 acres east of Orange. The school will be built adjacent to a 25-acre city park, providing opportunities for joint use. The district will also receive $3 million to expand and update facilities at Chapman Hills Elementary School, and $8 million for high school improvements.

The district will have the discretion to use the high school funding to expand and improve El Modena High School or to build new capacity at Peralta High School should that school be constructed. Interim capacity will also be provided for Santiago Charter Middle School and El Modena High School as needed.

The proposed timing for the new K-8 school is expected for 2009 or 2010 depending on when residents begin moving into the new communities.

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Like other California public schools, Orange schools receive federal, state and local funds from several sources. School operations are financed primarily by state sales and income tax revenue and by local property taxes. They are supplemented by federal funding, the state lottery and other local funds. The funds schools receive pay for all expenses, from teacher salaries to energy costs. In addition, districts receive state and federal money for special programs or categories of children with special needs.

In California, about two-thirds of funding comes from general purpose or "revenue limit" income and about one-third is from "categorical" income. In Orange, schools have partnered with more than 100 local businesses, service clubs, local universities, and other organizations to provide funding for additional special projects.

The accompanying chart details the source and amount of funds schools receive. Those indicated are the only sources of funds available to run California's K-12 public schools.

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Financing new school construction typically includes state funding, developer fees, general obligation bonds and Mello Roos special taxes.

· State funding is either provided when a school is constructed, or as a reimbursement for the new construction. In order for school districts to access state funds for new construction, they must show they have a projected number of students in excess of school capacity, an available school site, a school design ready for construction, and local matching funds.

· Community Facilities Districts provide new school construction funding. Many school districts get their state matching funds through Mello Roos assessments paid by homeowners who will benefit.

· Developer fees are usually used to provide portable classrooms or to enhance existing schools. These funds come in over time as homes in a new community are built, and must be accumulated to be useful as matching funds for state dollars. They do not provide the large total sum required for matching state funds. In Orange, the mitigation agreement with OUSD totals $76 million, which is $47 million more than the district would receive through legally-required developer fees.

· Many school districts obtain their matching funds through General Obligation Bonds when it is time to acquire land and start construction. Residents in the City of Orange defeated two separate bond measures last year for facility repairs. State law prevents OUSD from asking for another bond until March 2006.

Declining or stagnant enrollment can have a devastating effect on a district's ability to keep programs and schools open and operating effectively. Because school districts receive state funds and local property tax revenue income based primarily upon the number of students in the district, anticipated, planned growth is much more beneficial to a school district.

The funding the district receives is based on the Average Daily Attendance (ADA) for the district. Since the main source of revenue is paid on the basis of ADA, growth is financially helpful to a school district. Each new student in California brings approximately $7,000 - $9,000 to the district.

After a school is built and open the fixed costs, such as utilities, maintenance, teachers, administration and other operational costs remain the same whether a school is at capacity or below. Fewer dollars are allocated to a district when attendance is low. However, the school must still operate as if it were at capacity. Therefore, a school is more economically efficient when classrooms are full, and the district has more budgeting flexibility.

When a district such as OUSD plans well for growth, it can accurately estimate when new teachers, administrators, and other staff are needed, as well as plan new facilities and programs for a particular school.

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