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Rental Housing, Prop 13, and School Funding

Original post made by Prop 13 Victim on Jun 28, 2006

Has anyone ever tried to determine how many students in PAUSD live in rental properties? The answer matters because PAUSD is a basic aid district, and thus gets almost no funds from the state for additional students. Although I have no data, experience with my children's classmates suggest that the number is 10-20%. About half of Palo Alto's housing units are rentals.

For example, a recent advertisement lists a 4 bedroom rental in Palo Alto at 833 La Para (Web Link) for $5500/mo. This property generates $900/year in property taxes (Web Link), yet burdens the fixed pie of the school system with at least 3 extra kids. Multiply this problem several hundred times and you should understand my concern.

I see a problem that dwarfs all of the red herrings raised by the anti-parcel tax crowd, e.g., false residency. Prop 13 may keep a few seniors from eating dog food (or moving to Arizona--far worse), but it seems to have evolved into a particularly nasty form of parasitism benefiting landlords in basic aid school districts. Is a legislative fix possible? Of course, Palo Alto could always stop being a basic aid district. Is that the sound of falling housing prices I hear? Lookout below!

Comments (5)

Posted by Richard, a resident of College Terrace
on Jun 28, 2006 at 10:19 pm

The burden of school finance should be carried by all of the citizens of the city equally. Or even in the form of a state tax.
There should be no special or significant parcel tax or any other tax specifically directed at the property owners and voted in by people who are not subject to pay these taxes.
Many of us don't have children in school and live on fixed incomes. It's not just few elderly. Where is the justice in us carrying a parcel tax burden?


Posted by A Guy, a resident of Fairmeadow
on Jun 29, 2006 at 5:09 pm

I guess I don't understand why you think prop 13 benefits landlords more than it benefits any other long time property owner.

And I don't understand the concern over renters. Renters are the ones who indirectly pay the landlord's property tax bill. Moreover, by your own estimate there are a disproportionately more renters without children susidizing property tax payments for those with children.

If anybody should be ticked off, it's those folks who don't have any kids and yet are paying for the local school system.

OTOH it's today's kids will be the one's having to pay an unfair amount of social security to fund current adult's short sighted underfunded Social Security benefits.


Posted by Prop 13 Victim, a resident of Duveneck School
on Jun 29, 2006 at 8:33 pm

Guy

I'll go into a little more detail as to why I find the effects of Prop 13 especially nasty when it comes to landlords renting to families with school age children. In 98% California school districts funding comes directly from the state and is directly proportional to the number of children attending school. If you add more students, the state will provide more funds. The Palo Alto school system is different. Palo Alto has a relatively high tax base, so it opted out of the conventional state funding system and funds most of the school system directly from property taxes. So, if you add more students, but don't increase funding, the amount of funding per student decreases. This system serves Palo Alto well because the schools are better funded that they would be under the state funding levels. Better funding is used to create the perception of a better school system and consequently create a price premium for lousy Palo Alto housing.

Now consider the Prop 13 effects. Prop 13 was in theory designed to prevent the elderly from being force out of their home because of rising property taxes. But many seniors (and older Baby-Boomers) have moved out or died, but the properties are still being taxed at a Prop 13 sheltered rated. So the seniors or their heirs are free to rent out the tax-sheltered properties at market rates. Renting a lightly taxed property to a family with kids adds more children to the school system, but doesn't bring in any more money. So, the amount of funding per student goes down in Palo Alto. Thus many Palo Alto landlords (including apartment building owners) who rent to families with children not only enjoy low taxes, but impose a very significant burden on the school system. If the profits on rentals could be taxed for the benefit of the local schools, the problem would be reduced.

*****
By the way, if you think Social Security funding is unfair. Take a look at Medicare. The net present value of Medicare obligations is about 75 trillion dollars. No one under 50 can seriously expect to get benefits like today's seniors.


Posted by David Cohen, a resident of Midtown
on Jun 29, 2006 at 11:56 pm

For what it's worth, I'd like to add two items. The point about rental units locally bears some similarity to the issue of commercial property statewide. Prop 13 was supposed to be about protecting people from being taxed out of their homes, especially people on fixed incomes. Meanwhile, many commercial properties have been enjoying the same shelter on their tax burden while they are free to change other aspects of their business in order to grow their income as much as the market will bear. I'm not suggesting we should wring business dry to get every possible tax dollar, but it seems reasonable to suggest revisiting Prop 13 as applied to income-generating property, in order to find some remedy to the unintended consequences.

Second item: It may be true that students and their families derive more direct, immediate benefits from tax revenues that support schools; however, in any discussion like this, I believe it is absolutely essential for ALL members of the community to see themselves as beneficiaries of a good public school system. If you live in the community, then the school system is educating your neighbors, the adults of tomorrow, providing to them the skills and training that will enable YOU to continue enjoying the benefits of having a competent, informed, civic-minded and productive citizenry. That's the ideal we should keep in mind. It may be true that we're paying for an education that often leaves our immediate community, but the quality of our schools also attracts substantial economic and "quality of life" benefits. And again, those are benefits shared by all, regardless of family status. It would also be wise to think of our community in a broader sense on this issue - regional, statewide, even nationally.


Posted by Tax Payer, a resident of Midtown
on Jun 30, 2006 at 11:32 am

If you don't like paying parcel taxes to benefit the schools, you probably love the fact that PAUSD has not yet used the Measure A special assement parcel tax funds to reinstate all the programs they said they needed your $473 per year special assessment for. But instead they are moving aggressively forward with a plan to offer a Mandarin Immersion program, a program that will teach all academics to 240 kids in Chinese (This is NOT a program intended to help ESL students assimilate into English. Its a program intended to teach Mandarin Language, literacy and culture.) WARNING: They'll claim this program is cost neutral because they're applying for a grant from the US government to fund start up costs. (Hey that's tax payer dollars too, last time I checked!) But they definitely have not taken full overhead into account when building the cost estimates for the program, and have not said how the long term permanent program would be funded when grants are gone. In the meantime, the district does not have a plan for refreshing classroom technology, isn't doing all it should with math, science and English and isn't solving issues of overflowing elementary schools, etc. And they haven't reinstated all the programs they said they needed Measure A for yet!

Do the tax payers care was PAUSD does with their money? They should! If you care, please send an email to the PAUSD board members and let them know you do not support Mandarin Immersion as a tax paying resident. The LEAST thing PAUSD could do is spend YOUR hard earned tax dollars wisely.

(Yes, you pay for the taxes whether you are an owner or a renter, because RENTERS pay landlords to cover their costs including mortgage, insurance and taxes!)

By the way, the quality of the Palo Alto schools benefits every property owner in Palo Alto by keeping the property values high. It doesn't matter if you have kids in school or not, you should be interested in keeping the Palo Alto Schools strong for the sake of your $1.2M minimum asking price - that's why everyone pays the taxes, not just those with kids. But even so, we should expect the school district to use those tax dollars wisely in ways that will keep the district competitive and serve the needs of the broader community. Its just plain dumb to think the PAUSD should start running private school programs for the benefit of a special interest group.


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