School district considers tax measure that city fears could jeopardize housing growth

Plans for major housing growth in Mountain View have local education officials searching for ways to fund new schools to serve the families who will be moving in. However, the city is warning that one of the methods the Mountain View Whisman School District has been contemplating could stymie new housing construction.

The district is considering a tax that in one scenario would charge certain types of newly built condos at a rate that’s over 100 times higher than what the district would assess existing single family homes.

‘If all this building (in Mountain View) takes place, which it’s on track to do, we’ll need to double in size, almost.’

Ayinde Rudolph, Superintendent, Mountain View Whisman School District

State housing mandates require the city to plan to increase the number of homes in Mountain View by nearly 33% by 2031, which pencils out to 11,135 new housing units. The school district is considering targeting its efforts to raise money for new schools to areas where most of the city’s housing growth is expected — the area north of Central Expressway.

In order to charge new homes at a higher rate than existing housing, voters would be asked to pass a Mello-Roos tax, also called a “community facilities district,” which would allow the school district to levy an annual tax on properties within only a portion of its boundaries.

In August, the school board reviewed possible rate structures, which proposed charging existing single-family homes between $49 and $99 each year, while certain new market-rate condos and townhomes could be hit with an annual bill in excess of $5,000.

The measure would help finance new schools, but could slow the production of new homes. The city fears that a Mello-Roos district could lead the state to reject Mountain View’s expansion plans, known as a housing element, reasoning that the high tax will deter developers from actually building housing.

City officials declined to answer questions for this article about their position on a Mello-Roos tax district, although their concerns have been laid out in staff reports to the Mountain View City Council.

Mountain View’s city planners point out that the California Department of Housing and Community Development is closely scrutinizing housing plans, looking for “constraints” that could prevent housing from being built.

The concern is that a tax measure like the one being considered could be so detrimental to residential construction that housing zoned north of Central Expressway – where the bulk of growth is planned – may not count towards the 11,135-unit goal.

“It would be considered a constraint on housing development, which could preclude the city’s use of those areas for the site inventory used to satisfy the city’s obligation,” according to a city staff report.

The conflict brings to the forefront a nagging problem in Mountain View, namely school districts’ ability to pay for the new schools and classrooms needed to serve the expected influx of students generated by the city’s ambitious housing goals.

‘If a new development can pay for new roads, a new development should be able to pay for a new school.’

Ayinde Rudolph, Superintendent, Mountain View Whisman School District

District officials maintain that new neighborhoods ought to have neighborhood schools, and that there are few options for financing that kind of infrastructure outside of a hefty tax. School leaders add that it isn’t just a Mello-Roos tax that could hinder the city’s housing goals, but also Mountain View’s existing taxes and fees.

“While we understand the city’s position, at the end of the day, it’s going to take all of us in order to resolve this issue,” Superintendent Ayinde Rudolph said in December. “The Mello-Roos is just a part of a larger equation about whether or not we can bring more housing to Mountain View, which is the right thing to do.”

The expected cost of new schools isn’t small. The district has calculated it will take as much as $1.5 billion to purchase land and build facilities to satisfy the growth it expects. Ultimately, the district has forecast that 3,430 new students will enroll. Mountain View Whisman’s current enrollment is roughly 4,500.

That eye-popping $1.5 billion figure assumes that the district has to buy land and build four elementary schools and one middle school, district spokesperson Shelly Hausman said.

District officials concede there could be ways to bring down the cost, like using existing district properties or building more compact schools on smaller parcels, but argue that regardless of what steps they take, a large funding gap will remain.

“We probably will need to rearrange boundaries at some point. We probably will need to look at maximizing every single property to its fullest extent,” Rudolph said. “But that still does not get us to solve the larger problem, which is if all this building (in Mountain View) takes place, which it’s on track to do, we’ll need to double in size, almost.”

One reason a Mello-Roos tax could be an attractive option is because of the amount of money it could raise. The district decides how big a tax it asks voters to pass, but it estimated last fall that a Mello-Roos district could bring in $442 million.

Limited options for new school funding

The other funding mechanisms the district has at its disposal don’t have that same potential. School districts often fund large construction projects with general obligation bonds, borrowing money that is repaid through a voter-approved increase in property taxes.

The problem is that, as of last fall, the district was only eligible to issue $168 million in bonds, which Rudolph said won’t “even come close” to meeting its needs. Mountain View Whisman’s total bonding capacity sits at $436 million, but the district already has $268 million in outstanding bonds, according to a November 2021 report to the school board.

‘Unfortunately, if developers, the city, community members and the school district don’t work together, we’re going to be in a position where we have schools that are overcrowded because we don’t have enough space.’

Ayinde Rudolph, Superintendent, Mountain View Whisman School District

That’s largely because in 2020 voters approved the $259 million Measure T bond, which the district is spending on shorter-term upgrades and redesigns of existing campuses, as well as building subsidized teacher housing.

According to Rudolph, Measure T was never intended to tackle the district’s long-term growth, but was aimed at dealing with more immediate needs, like upgrading aging roofs, improving campus security and revamping ventilation systems – which turned out to be particularly important during the pandemic.

“We had issues that needed to be addressed,” Rudolph said.

Another option is fees paid by developers, but the district points out that they fluctuate widely from year to year. In the 2019-2020 school year, the district collected $394,000 in developer fees. The next year, it was more than seven times that amount, at $2.9 million. Local school districts say developer fees are grossly inadequate for covering the cost of new school construction.

With its other options limited, district officials wrote in a November 2021 report that unless something changes, Mello-Roos taxes are the “strongest strategy” to raise money to pay for the expected student growth.

If the district does decide to pursue a Mello-Roos district, it would require two-thirds approval among voters currently living in the area that the proposed tax would cover – essentially, allowing existing residents to decide whether to tax future residents at an dramatically higher rate than what they themselves would pay.

Laying out a possible plan

In August, the district’s board of trustees heard a report laying out possible ways to structure the tax. One option would tax the entire district, while the other would only apply to those living north of Central Expressway. The rationale, school officials say, is because the northern portion of Mountain View is where most of the housing growth is expected.

Either way, the rate structures that the board looked at would tax new construction at far higher rates than existing houses. Current single family homes could potentially be charged $49 or $99 per year, while new market-rate 1-3 bedroom condos could have to pay as much as $5,795. The proposals did include discounts for below-market-rate (BMR) units, with one plan suggesting $1,565 annually for BMR condos.

In a December interview, Rudolph defended charging new units more, arguing that money is needed to provide schools in areas of the city where homes are only now being built, like North Bayshore and East Whisman.

Those areas will potentially need four to five more schools, Rudolph said. If developers are being asked to pay fees for other services like parks and roads, he said it makes sense for schools to benefit as well.

“The only entity not in that conversation is schools,” Rudolph said. “If a new development can pay for new roads, a new development should be able to pay for a new school.”

A Mello-Roos district would create an annual tax on property owners, rather than an upfront, one-time fee paid by developers. However, the yearly tax expense could reduce the price that developers are able to charge for a new housing unit.

A Mello-Roos tax could also apply to commercial developments, like office buildings, Rudolph said. However, the proposals the district’s board looked at last August only mentioned residential construction.

Hausman, the district’s spokesperson, said in an email that the school board has not taken any action to put a Mello-Roos district on the ballot and that no tax rate has been decided.

City raises concerns as business groups show strong opposition

The prospect of a Mello-Roos district has the city raising concerns about its ability to meet state housing mandates, arguing that a hefty annual tax could have a chilling effect on new construction. Developers have also come out in strong opposition to the proposal.

Dennis Martin, writing on behalf of the Building Industry Association, sent a strongly worded letter to the Mountain View Whisman School District blasting its decision to consider a special tax through a Mello-Roos district. He warned that the tax would scrap years of careful planning for residential development in Mountain View, and would act as an impediment to affordable housing, which is difficult to finance even without an extra tax burden.

“Incumbering new housing and new households with thousands of dollars each year in additional special tax bills is a potential disaster for Mountain View because it will most certainly render economically infeasible thousands of planned units on which the City and the greater Silicon Valley region depend to help meet our crushing housing shortage,” Martin wrote.

Martin, who did not respond to requests for comment, also called the proposed tax “unjust” for creating two classes of residents – existing property owners paying a relatively small rate and a new class of residents that would face up to $5,795 in taxes each year, under the rate structures the school district considered. He made the case that levying a tax that largely falls on future residents is also illegal, pointing to cases in which special taxes in several Southern California school districts placed on new housing units were ruled to be unlawful.

The shaky legal footing lies in whether a significant tax can be passed by voters that they themselves will not have to pay, which Martin argued subverts the constitutionally imposed mandate of approval by a two-thirds majority.

Rudolph rejected any suggestion that taxing future residents at a higher rate is a ploy to increase the tax measure’s odds of passage.

In March 2011, the Santa Clara Unified School District tried to pass a similar two-tiered Mello-Roos district that levied a $19 annual tax on existing residents. Despite softening the blow for existing residents, the measure fell short of the required two-thirds majority.

The Mountain View Whisman district said last fall that it was going to poll residents to determine what they’d be willing to support, but as of the end of January 2022, Hausman said the district hadn’t gotten the results.

Rudolph called the Building Industry Association’s opposition unfortunate and said it was disingenuous for them to suggest schools should be funded through mechanisms set up in the School Facilities Act of 1998, which was passed over two decades ago.

“While I understand their frustration, I think what we should do is tone down the rhetoric just a little bit and think about what everyone is trying to accomplish,” Rudolph said. “We want to have a complete neighborhood in these communities, and a complete neighborhood includes police, fire, schools, shops, parks – it includes all of these things.”

He also pointed out that a potential Mello-Roos district is far from the only cost that’s being levied on new housing.

“There’s a lot of factors that play into whether or not (the city is) going to be able to meet their RHNA requirements,” Rudolph said. “If it wasn’t the school district, then it would be the park fees and the transportation fees. I think it’s a combination of all of them, it’s just that the Mello-Roos is the last one that’s been put on the drawing board.”

Other constraints could hamper Mountain View’s housing growth

Although city officials have seized on the Mello-Roos district as a potential make-or-break constraint on housing, the city may already be straddling the line when it comes to stacking extra costs on new residential construction. The high cost of park fees, parking requirements and other added development costs have long been a cause for complaint by housing developers, and building neighborhoods in historically industrial parts of the city is expected to carry higher costs as new infrastructure is put in place.

When considering the viability of housing in East Whisman, a consultant for the city concluded that it “may not be financially feasible” without financial assistance or significant reductions in project costs. The study points to park fees – a contribution to funding open space the city charges to developers – which have skyrocketed over the last five years and now range between $60,000 and $110,000 per market-rate unit.

If housing in North Bayshore and East Whisman are not counted towards the city’s housing mandate, Mountain View planners say that more parcels will need to be rezoned for housing elsewhere in the city. Both the City Council and city staff have shied away from making sweeping changes to multifamily residential zoning, however, raising questions over where Mountain View can add further density.

State housing officials say a Mello-Roos district, on its own, would not sink the ability for Mountain View to count housing towards the RHNA mandate, but that it could contribute.

“In all elements, a jurisdiction must consider governmental and non-governmental constraints and may need to use programs and strategies to address those constraints,” said Alicia Murillo, a spokeswoman for the California Department of Housing and Community Development. “The dynamics of that would need to be considered in the full context of their element review.”

City officials declined an interview but provided a statement arguing that Mountain View has an extensive strategy for assisting local school districts in finding school sites and funding new construction, but it also has an obligation to identify sites that can feasibly support 11,135 additional homes between 2023 and 2031.

Possible ways to reduce school costs

Even if Mountain View Whisman got a Mello-Roos district approved by voters, it still wouldn’t come close to raising the $1.5 billion that the school district says it will need.

The lion’s share of the $1.5 billion figure comes from the expected price for land, which the district said could cost an estimated $15 to $20 million per acre. To calculate the total estimated cost, the district assumed it would need four elementary schools of 5 to 10 acres each and one middle school on 17 acres, Hausman said, adding that these are smaller than the acreage recommended by the California Department of Education.

Construction is estimated to pencil out to $443 million, and fees that the district receives from developers, plus possible state reimbursement, could reduce that number to $338 million, according to a report the district produced last year.

“Our larger concern is the acquisition of land, because without land you can’t build schools,” Rudolph said. “Unfortunately, if developers, the city, community members and the school district don’t work together, we’re going to be in a position where we have schools that are overcrowded because we don’t have enough space.”

The district has considered going with an urban school design on smaller lots, putting an elementary school for 700 students on 2.5 to 3.5 acres.

The district’s current elementary schools are designed for about 450 students and sit on roughly 9 to 11 acres, according to a district report. The exception is the district’s newest campus, Vargas Elementary School, on 4.7 acres.

Going with the urban schools model isn’t without its challenges. Construction would be more expensive, because it can require multi-story classroom buildings and underground parking. In 2019, Rudolph said the district estimated that building this type of school would cost $88 million. According to Rudolph, costs have likely increased since then to roughly $125 million. He added that these estimates don’t take into account purchasing land or potentially expensive environmental remediation.

“There are definite ways for us to provide cost savings, but those require the community to undergo things that they may not be comfortable with, which are larger schools with more kids on campus (and) smaller footprints for schools,” Rudolph said.

Another way to cut costs is using existing land the district already owns, swapping land with a property owner in the city to get a different site, or being given land by an outside party.

Google has suggested giving a 4-acre site in North Bayshore to the city for open space and a future elementary school. Rudolph said he takes the current City Council at its word that it intends for the site to be a school, but added that a future council may see things differently when the time actually comes around to turn it over to the school district – especially if it’s been green space used by the community for years at that point.

The district also owns four properties that it doesn’t currently use for public schools and in some cases currently rents out: the Whisman school site, the Cooper school site, the Slater school site and Sylvan Park.

None of the properties are north of Highway 101 or in East Whisman, although the former site of Slater school is nearby.

The bulk of the new housing on the horizon in Mountain View is in North Bayshore and East Whisman, two industrial, office-heavy areas of the city recently rezoned to support thousands of housing units. In an October letter to the city, Rudolph made the case that these areas should not have to rely on existing campuses across town, and that new residents will expect quality schools within walking and biking distance.

Rudolph pointed to the state’s own language that newly zoned housing, particularly low-income units, ought to be placed in “high-resource areas” that include equitable access to amenities, good jobs and high-performing schools.

“While parks, city services, transportation and other amenities play a rule, ultimately families choose to stay in Mountain View because of our wonderful schools,” Rudolph wrote.

Rudolph said he wants the city and developers to sit down with the school district and find an appropriate way to fund school construction, so that no one entity is uniquely burdened.

“We’re willing to do our fair share and find ways to fund it, which is what we were encouraged to do, it’s just (that) some of our funding options appear to be untenable to developers and to the city,” Rudolph said.