The current tax rate of $44.50 per $100,000 of assessed property valuation under the 2008 "Strong Schools" facilities bonds will rise to $60 per $100,000 of assessed valuation.
That hike, together with the current $35 tax rate on the 1995 "Building For Excellence" bonds that are still being paid off, will yield an annual tax bill that is 4 percent — or $422.45 — higher for the homeowner with the average assessed valuation of $850,000.
The rate increase — not anticipated when the $378 million "Strong Schools" bond passed with nearly 78 percent of the vote in June 2008 — will enable the construction program to continue despite the recession-induced slowdown in assessed-valuation growth that threw off original estimates.
The higher tax rate now also means substantial savings later — in the neighborhood of $1 billion in financing costs — because of a sharply shortened repayment period.
That savings in financing costs, along with a reluctance to saddle future generations with debt for school buildings being built today, persuaded four of the five school board members to vote for the tax-rate increase in the wee hours of June 13.
Board member Barb Mitchell dissented, saying her concerns about claims made to voters at the time of the 2008 election outweighed the lure of reduced debt service and a shorter repayment period.
Thirteen current and former school district parents, including nine finance professionals and two former school board members, urged the board to shift course and go with the higher tax rate and shorter repayment period.
"The economic disruption of 2008 to present has dramatically changed the assumptions underlying the original $44.50 bond tax rate," stated the letter, which was drafted by district parent and private-equity investment manager Todd Collins, who chairs the Citizens' Oversight Committee for the 2008 Strong Schools bond.
"Rather than choosing between issuing onerous capital-appreciation bonds or canceling needed projects, we propose an alternative that takes advantage of the current low interest rates and saves our community hundreds of millions of dollars in compounded interest."
Sticking with a lower tax rate, the letter said, would force repayment on the 2008 bond to be stretched out over the next 45 years.
Under the new plan, the combined tax rate for the two bonds will be $95 per $100,000 of assessed valuation in 2013, declining over the next eight years to less than $65 after 2021. The 1995 Building for Excellence bond will be fully paid off by 2024.
Besides Collins, signers of the letter were: former school board member and Bond Citizens Oversight Committee member Ray Bacchetti; oversight committee member Scott Darling; finance professional and former board member of Palo Alto Partners in Education Elisabeth Einaudi; finance professional Stephen Godfrey; lawyer Walt Hays, who signed the ballot argument for the 2008 Strong Schools bond; financial professional David Hornik; municipal bond professional Tony Hughes; small business owner and finance professional J.R. Matthews; finance professional Anne Rockhold; finance professional Greg Sands; finance professional and former oversight committee member Steven Shevick; and former school board member Don Way.
At the June 12 board meeting, which went past midnight, Hays — grandson of the Presbyterian minister and school board president for whom Walter Hays Elementary School is named — urged the board to raise the tax rate.
"The citizens of Palo Alto have shown over and over again they like to deal with issues head on and not put them off to burden future generations," he said.
"One really good demonstration of this is that so many voters rallied to pass the latest school bond by over 70 percent, so it seems inconceivable that we'd want to saddle future generations with $1.3 billion in unnecessary costs by keeping the current tax rate.
"I recognize it is a burden to double your tax rate, but I think Palo Altans have shown they're willing to accept those burdens to maintain their very precious and highly valuable schools that everybody wants to move here so they can join."
Most board members appeared to agree with Hays.
"Given the huge change in the financial landscape since the (2008) bond election, the question is whether to bear a larger burden now from facilities we'll benefit from soon, or push off the payments 35 years," board member Dana Tom said.
Board President Camille Townsend said, "As a taxpayer and as a member of the school board with children, and thinking about the future, it seems to me that saving this kind of money for taxpayers makes sense."
Superintendent Kevin Skelly said he will prepare a letter to district taxpayers explaining the change.
The 2008 Strong Schools bond is modernizing and adding facilities at all 17 campuses in the Palo Alto district in response to rising enrollment. Major construction — including, in many cases, new, two-story classroom buildings — is completed or in progress at Gunn and Palo Alto high schools, Jordan, JLS and Terman middle schools and Ohlone, Fairmeadow and Duveneck elementary schools.