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By Steve Levy

The Relation of Palo Alto School Finance and Development--Background Concepts and Data Sources

Uploaded: Sep 21, 2014

Parents and residents in Palo Alto are naturally interested in and concerned about K-12 school funding and class size and the relationship of school finance to development of jobs and housing.

This is a very complicated and at some times emotional issue and I invite members of the school board and staff to weigh in with local data and insights. This blog is meant to be a very general background piece on the issue.

Most school districts in California get the majority of operational funding from the state through state revenue limits. They are called revenue limit districts. The revenue limits are governed by state revenue growth and inflation under a set of complicate formulas set forth in Proposition 98. Recently the state has made changes for a portion of this revenue limit funding to help students in low wealth districts.

Background from the Public Policy Institute of California (PPIC) and the state Legislative Analyst's Office (LAO) are linked to below and more information can be found on their websites or by searching for education funding in California.

web link

web link

Palo Alto schools are funded differently. There are approximately 125 districts in California covering 5% of students who get the majority of school funding from property taxes and do not get state revenue limit funding. These districts get more funding per student under this arrangement as their property taxes are high enough to exceed what the state revenue limit funding would provide.

Property tax funding for schools in Palo Alto has two important implications in relation to job and housing development.

Most districts get additional per student revenue limit funding from the state as the student population increases. Palo Alto does not. Many residents then point to the fact that some types of new housing do not provide sufficient revenue to offset additional student costs. This is true but is only part of the relationship between school funding and development.

First, all commercial development that adds to the tax base without adding students is a net gain to local school funding. Second, there are many types of housing development that add few or no students such as housing for seniors whether to downsize or for other reasons, and smaller housing for 1 or 2 person households?studios and one-bedroom units.

So if you want a development policy that favors school funding, you would favor high property tax commercial development and smaller housing units. Note that while hotel taxes and sales taxes do help the city budget, only property taxes help fund schools.

Moreover, if you really wanted to control school enrollment you would pass a law (probably not legal) to forbid anyone from selling their home to someone with more kids than are living in the house now. I believe the school district demographers found that most (not all but most) of the recent enrollment increase came from the turnover of existing housing units. Of course we would not do that even if legal as it would infringe on the rights of property owners including single family home owners from realizing the full value of their investments.

But it does point to the major source of ups and downs in school enrollment.

There is also the issue of school capacity and class size. This is an issue that the school board is following closely and cares deeply about. It also is complicated and has a long history based when the district had excess capacity, sold or rented school sites and used the revenue to support services, and now finds the need potentially to expand capacity again.

Finally there is the issue of whether school districts exist to serve students or to challenge development policies to reduce student loads. Someone before me built the schools our children attended and provided capacity as our student population expanded. As a resident I would like to return the favor. As a senior we pay the parcel tax that we are allowed to opt out of and support with our tax dollars school bonds though we will never have family members in Palo Alto schools again.

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