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By Steve Levy

Who Pays for Palo Alto Schools

Uploaded: Feb 19, 2019

There is an ongoing discussion about what, if anything, Stanford should pay for students added in housing on campus. The Weekly had an op-ed arguing the current per student costs were near $20,000 and that Stanford should pay “full mitigation”, which I interpret as $20,000 or so per added student. I do not know what the right number is but I am sure that it is nowhere near $20,000.

There are so many misunderstandings in this chain of reasoning that it is hard to know where to begin—misunderstandings about who pays and how much for our schools, about the difference between average cost and marginal cost per student and misunderstandings about enrollment trends and the cost of students in the 550 rental units that Stanford is proposing.

Let’s start with who pays for the schools. I got these numbers form the 2016-17 and 2017-18 budgets. If anyone has updated numbers, please add them in but I am pretty sure these numbers are close to currently correct.

Of the total revenues, a little over 80% come from the property and parcel taxes. The other 20% come from state and federal aid, lease revenue, donations. The 2016-17 budget book showed $17.5 million from the state, $9.6 M from lease revenue, $8.6 M from special education funds, $5.7 M from Partners in Education donations and a small amount from other sources—all adding up to around 20% of school funding.

Of the 80% from local tax revenue, 28% came from non-residential property owners.
So that leaves roughly 60% of school revenue that comes from property and parcel taxes on residential property.

We can calculate the average payment per household. There are roughly 29,000 housing units in Palo Alto and the assessed value (both for 2019) is $23.4 billion. So the average residential AV is around $800,000—much more for single family homes and less for apartment units.

I believe PAUSD gets about 45% of the total property tax (if anyone knows a different %, please weigh in) so $800,000 in assessed value would produce $3,600 in school property tax. Add in $800 for the parcel tax (voluntary for residents 65 and older) and you get an average contribution of $4,400.

What does this tell us? We now know that around 20% of school funding does not come from taxes on property and another 20% comes from non-residential owners. The rest comes from families with children in school and most from families with no children (or children in private school) and from older residents like Nancy and me whose children have long graduated. In 2017 just over one-third of Palo Alto households had children under 18 living at home.

Virtually no one pays $20,000 per student. We have owned a home in Palo Alto for 42 years and we have yet to come close to paying for the cost of our kids’ education even though back then it cost much less than $20,000 per student per year.

Most current transactions are around $2 million for a single family home. The new residents will pay $10,000 in school property and parcel taxes—about half of the cost of one student. The rest is paid by others. And not so much is paid by long-time owners like myself whose property taxes have risen by at most 2% per year.

And 550 rental units built by Stanford even if taxed would pay far less than the tax on a $2 million home.

But Nancy and I are happy to support the schools as other did for our children and happy with many other long-time owners to pay the parcel tax. We recognize that supporting our schools is a joint endeavor.

Next there is the issue of marginal cost versus average cost.

Even if 275 students were added to an enrollment of 12,000+ very few cost items would change. Many if not most cost items are not sensitive to a 2% change in enrollment.
But that is not relevant as even if new on campus Stanford rental housing added 275 students, total enrollment is expected to go down not up. And new state projections released in January show a decline in enrollment statewide with Santa Clara County having the third largest total student loss.

This is happening as birth rates fall and families with 2 or more children are replaced by families with fewer children and the share of families with children declines as the population ages.

This is a mistake often made in EIRs and public discussion--looking only at the incremental effect and not what happens for existing homes and residents.That is why we have more homes than 30-40 years ago and yet fewer students and why water conservation from existing residents can and did offset water use from new residents.

The people who are making the Stanford should pay $20,000 per student argument are smart people. So it is hard to explain why they skipped over the data presented above and the obvious American value that we all pay for the education of the children in our community, not just the people who have children now or the people who build the homes they live in.

Maybe a fair amount is for Stanford to pay what they would be assessed if the rental housing they build on campus were taxed. I will leave that to the negotiators. But even that amount would be far, far less than $20,000 per student