Date: Tuesday, April 8,
Take the money and ruin?
Many fear threatened school budget cuts could
affect real estate values
by Carol Blitzer
If Gov. Gray Davis' proposal to take property taxes allocated
for local schools becomes law, more than school administrators
will worry about how cuts will affect school quality.
real estate agents and homeowners -- both current and future
-- are concerned that the so-called "Palo Alto premium" will
It's the belief that the area's high-quality schools are worth
a premium price that has some home owners settling for a smaller
house at a higher cost in Palo Alto, noted Mandy Lowell, president
of the Palo Alto Unified School District and a 13-year resident
of Palo Alto.
Why else would people be willing to pay more than $800,000 for
a tract house in south Palo Alto that would go for $550,000 in
"Part of the fabric of our community is the attractiveness of
people who value education so highly," Lowell said, noting that
access to Palo Alto public schools is even cited for recruiting
new faculty to Stanford University.
Real estate agents have touted the schools for years as a compelling
reason to buy in Palo Alto.
"The reality is real estate in Palo Alto definitely for the past
25 to 30 years has been driven by the strength of the schools," said
Leannah Hunt, co-chair of the Palo Alto Realtors Association and
a Coldwell Banker agent.
With the district facing the biggest financial crisis in its history,
real estate agents and home owners fear that housing prices could
slide. Davis proposes grabbing $126 million in property tax revenue
generated by basic-aid districts, of which Palo Alto is one of
60. For the district that could mean a 25 percent reduction in
its $108 million budget, a cut that could mean substantial reductions
in the kinds of programs and staffing levels that have made the
district so attractive.
Economists and real estate agents project that such a hit, would
definitely affect housing prices and sales in the area, though
there is little consensus on how far prices would fall.
"I don't think the real estate market will go to hell in a hand
basket because of these cuts, but it will have a real impact, if
we were to lose that status," Hunt said.
Many in the local real estate community, along with the Chamber
of Commerce, are working with the schools to defeat the governor's
proposal, she added.
In the past several weeks, real estate agents have passed out
literature at open houses to let prospective homebuyers know what
they can do to be proactive in dealing with the proposed cuts --
including writing letters to their local assemblyman, contributing
to the Palo Alto Foundation for Education and getting more information
from the PAUSD Web site.
Carnevale and Rosemary Squires, agents with Alain Pinel Realty
in Menlo Park who do most of their business
in Palo Alto,
feel strongly that "property values are linked to the quality of
the public schools, which is why the price of Palo Alto properties
has been higher when compared to other communities," said Carnevale.
Although Carnevale and Squires have not seen potential homebuyers
dropping out of the real estate market because of fears about next
year's budget, they say that property values are intrinsically
linked to the value of the schools.
"To the extent that budget cuts impact the quality of education,
it stands to reason that there will be a negative impact on property
values," said Carnevale.
Jennifer Sherer, a neighbor of Lowell's, and her family moved
from San Francisco to Palo Alto because they wanted to live in
an area with good public schools.
"We could have gotten much more in Atherton, but we chose Palo
Alto for the schools and the neighborhood feeling. Palo Alto is
a magnet for families with children. There's not that gated feeling," she
said. "We rationalized the prices because we're not going to be
spending the money on private-school tuition," she added.
Longtime Palo Alto resident and economist Richard Carlson sees
a lot of families basing their home buying decisions on the schools.
now pay a premium to live in Palo Alto. ...Go across the creek
from me and look at the same home in Los
Altos -- there's
at least a $200,000 differential."
the schools were to make drastic cuts, slicing away advanced
placement, music and arts programs, Carlson --
who chairs Spectrum
Economics Inc. in Mountain View, as well as Palo Alto's Utilities
Advisory Commission -- said, "People would think, 'Why not buy
a place in Mountain View or Los Altos. Instead of that million
dollars in Palo Alto, why not buy for $800,000 or less in Mountain
Wright, William Robertson Coe Professor in American Economic
History at Stanford, served on Committee
2000, which looked at
projected demographics in the district in the 1980s. At that time,
he learned that "real estate agents are said to be the most eager
consumers of test scores because they use them in their work."
He, too, is concerned that changes of the magnitude proposed by
the governor would have an adverse effect.
you were to cut the budget by 25 percent that would be a big
enough jolt to affect property values."
he couldn't pin it down to specifics, he cited the idea of communities
investing in their schools as
a "fundamental driving
force for American public education. ... That connection has become
weaker because so much of the funding comes from the state.
justify it as an economist as a way for affluent people to stay
in the public-school system."
"Housing values are high because outsiders are willing to pay
a premium to live here, and that excess will taper off," noted
Stanford University Emeritus Professor Henry Levin (and William
Heard Kilpatrick professor of Economics and Education, Teachers
College, Columbia University), who served on the PAUSD board in
would not be surprised if a cut of 20 percent in the budget of
the PAUSD led to a 20 percent reduction in housing
think that would be in the range of expectations."
His successor at Stanford, Susanna Loeb, assistant professor of
education, agreed that one could expect some change, but thought
20 percent a bit high. She pointed to a study of Michigan schools
where a district with $100 more in per-pupil spending had .4 percent
higher real-estate values. But, she did not know of any studies
that looked at what happened to the real-estate market when districts
had their budgets radically cut.
could foresee a 4 or 5 percent change in property values. "It's
hard to know. It could also lead to an increase in private schooling
for Palo Alto residents," she said.
that the worst-case scenario could not play out overnight, economist
Carlson could see a future proposal
for a local tax hike. "But
the next governor could take that away too. It'll be much more
difficult to pass a tax hike to make it up," he said.
"We've long expected we'd lose the basic aid. I think we'll lose
that and keep our property tax. That hurts but you're not cutting
into the bone," he added.
for Mandy Lowell, she's focusing on minimizing any cuts, to keep
the schools strong. As she says, "There's no
ocean view in Palo Alto. It's the schools."
Carol Blitzer can be reached at email@example.com
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