Editorial: Reining in the Cubberley lease

In a model of transparency, City Council directs scaling back expiring 25-year-old agreement

Having previously criticized the City Council for not recognizing the importance of providing the public with an opportunity to weigh in on and hear the council publicly discuss issues that are largely dealt with in closed session, it's only fair to commend them for Monday night's candid and open discussion.

The city and school district have been negotiating behind closed doors for months over the renewal of a complicated lease for 27 acres at the former Cubberley High School site that was originally penned in 1989 as a way to help the schools deal with a financial crisis brought on by declining enrollment.

Back then city leaders, with support from the Weekly, rallied to help the district by entering into an agreement that was essentially a funding mechanism designed to transfer city funds to the needy school district. The deal had three components: The district agreed not to sell off or redevelop unused school sites; the district provided space for after-school child care at each elementary school; and the city agreed to lease the closed Cubberley High School.

Today, with built-in escalators, the deal is transferring more than $7 million each year from the city to the school district, or about 4 percent of the district's budget. The city then leases out space at Cubberley to a variety of users and uses some itself, but generates barely enough income to simply pay for the operating expenses, with nothing offsetting the lease payments to the school district. The city is taking a bath on this deal, and with its expiration at the end of the year the time has come to rein it in.

Over the last 25 years, about $136 million has been transferred from city coffers to the school district.

During the depths of its financial problems, it was appropriate for the city to step up, successfully pass the utility tax and use some of that money to help out the schools. But no one dreamed that 25 years later this transfer of money from the city to the school district would still be taking place, especially given the district's current healthy financial condition.

The city is seeking relatively minor concessions in the lease-renewal negotiations compared to what it could and should be asking for. It wants to eliminate the $1.8 million a year currently being paid for the covenant not to develop or sell school sites that were considered surplus back in 1989, but which are now being utilized as schools or are lucratively leased. It also wants to end the cost-of-living increases that have driven up the lease costs.

As a result of the open discussion on Monday night, the public learned that the school district is taking the position that the city should continue paying for this covenant, even though the sites are no longer even remotely at risk of development. The school district wants to renew the current agreement without any changes when it expires at the end of the year, a position that is simply indefensible.

Quite appropriately, the City Council voted unanimously in public to affirm what it undoubtedly has been advising City Manager Jim Keene in closed session: There is no longer any legal or moral justification for giving $1.8 million a year to the school district. In fact, the case can be made it is an illegal conveyance of public funds.

As Councilmember Larry Klein, one of the major advocates of the plan 25 years ago, said, "I don't see how anyone can explain to our voters, most of whom are voters in the city and the school district, why the city should be paying for something that has no value."

The council voted to instruct Keene to hold firm with the school district, and several Council members suggested that if the district would not yield then the city should consider not renewing the lease at all.

For its part, the school district has argued that the city has a strong interest in supporting the schools given their importance to the community, and the agreement is an appropriate ongoing investment.

With other important city infrastructure needs and greater-than-expected growth in property-tax revenues for the school district, now is the time to begin phasing out the Cubberley lease without it having negative impacts on the schools.

The City Manager and Council were right to bring news of the impasse to the public and conduct a full discussion of their reasons for insisting on changes to the lease. By its unanimous vote, the Council also demonstrated a powerful united front.

Now it's time for the school board to move quickly to abandon its position on the $1.8 million covenant so it doesn't put the entire lease at risk.


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Posted by bobgnote
a resident of Mountain View
on Feb 28, 2014 at 10:17 am

bobgnote is a registered user.

[Post removed.]

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Posted by Alex Panelli
a resident of Monroe Park
on Feb 28, 2014 at 10:37 am

"During the depths of its financial problems, it was appropriate for the city to step up, successfully pass the utility tax and use some of that money to help out the schools."

Really? What about for those of us who are City of Palo Alto residents and pay the UUT, but are not in the Palo Alto School District? Where is the equity for those of us who pay our property taxes, pay a parcel tax to the Los Altos-Mtn. View school district, AND pay UUT, a large portion of which goes to schools we don't even use? How about the residents of other cities, like Los Altos Hills, who are in the Palo Alto School District but have never paid a dime of UUT?

The School District is a taxing authority of its own, and should collect its own tax revenues directly, not siphon them off from the city in a deal that heavily favored one side (the school district) over another (the City of Palo Alto).

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Posted by Bad Data = Bad Decisions
a resident of Greenmeadow
on Feb 28, 2014 at 10:54 am

Dear Editor:

How can you state that "with nothing offsetting the lease payments to the school district. The city is taking a bath on this deal, and with its expiration at the end of the year the time has come to rein it in."?

The City is collecting about $10 million that you fail to mention from the Utility Users Tax. Voters approved this tax when the lease was negotiated to make the city whole and pay the lease payments. If you consider that the revenue from the UUT creates a net positive cash flow for the city, then would you reach the same conclusion?

It's understandable that the Weekly would not recognize the fallacy of their claims as they are getting their information straight from the city staff reports. The city staff reports that analyse the lease only mention the expenses and not the offsetting revenues. Why not question this practice?

Biased and misleading staff reports do not serve the community well.

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Posted by Wayne Martin
a resident of Fairmeadow
on Feb 28, 2014 at 11:02 am

> Why not question this practice?

The Council has directed the Real Estate Managers to not charge market rates for the leases that they have negotiated with 3rd parties. Why did they do this? Presumably because they felt that "Palo Alto is a rich city, and everyone deserves a share." The revenue generated by this facility could be higher, although that might require some capital investment to upgrade the site to something that is equivalent to other locations.

The Office of the Auditor has never audited the management of Cubberley, so there is very little in the way of an "objective" view of how the site has been managed, and what kinds of revenue might be generated in the future. Nor has any professional audit service been engaged to consider current/other options.

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Posted by Palo Alto Parent
a resident of Embarcadero Oaks/Leland
on Feb 28, 2014 at 11:27 am

Our family has been huge supporters of PAUSD for many years. The City of Palo Alto should not being paying PAUSD for not selling school sites that bring in lots of rental income to PAUSD. That money should either be reinvested in Cubberley or put towards infrastructure. In addition, the City should be charging market rates to anyone who rents space at Cubberley.

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Posted by eyes wide shut
a resident of Adobe-Meadow
on Feb 28, 2014 at 12:09 pm

Yeah, yet another poor article from the Weekly:

"The [UTILITY USERS] tax was proposed at a City Council study session in January 1987 by Councilmember Larry Klein as a way the city might help the financially strapped Palo Alto Unified School District. Klein suggested “the city consider levying a tax on water, gas and electric usage and use the money to lease all vacant school property throughout Palo Alto.” (Peninsula Times Tribune, January 20, 1987) "

"In the official Argument in favor of Measure B, voters were informed that the proceeds would be used to preserve open space at school sites, protect neighborhoods from overdevelopment of surplus school sites, provide revenues to the PAUSD, repair streets and sidewalks, and provide affordable space for arts and culture organizations. "

Weekly, if you want informed public discussion. Provide the facts!

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Posted by Wayne Martin
a resident of Fairmeadow
on Feb 28, 2014 at 1:43 pm

The Measure B (1988) ballot language and supporting documentation for the voters does not mention the schools. the schools were mentioned by the Vote-Yes committee, which asked the following questions in the “Argument For” portion of the voters’ guide:

Web Link

Does Palo Alto need to preserve open space provided by surplus school sites?
Does Palo Alto need to protect its neighborhoods from overdevelopment of surplus school sites?
Does Palo Alto need to provide additional revenue to our schools so that we can continue to have excellent schools?
Does Palo Alto need to make substantial repairs to its streets and sidewalks?
Does Palo Alto need to provide additional space for its arts and cultural organizations?

The Vote-Yes crew enthusiastically claimed that the answers to all of these questions was: YES! But they provided no clue as to how any of these projects were going to be funded from this tax. With the money needed for the Cubberley lease consuming the bulk of the collections in the early years--there was little hope of any of these "distractions" coming true.

However, the ballot language presented to the voters did not mention any of these uses for the collect tax money—it simply laid out the technical aspects of the new tax. Advertisements and promises by “community leaders” are never legal, nor are these claims and promises binding.

Certainly by 1998, when the first “$100M Infrastructure Report” was released by the City Manager’s Office—there was a roughly $30M line item for streets and sidewalks, even though the UUT had been suggested by some as a source of revenue to help maintain the streets.

The UUT has gone into the General Fund, so it is very difficult to say it hasn’t been used to fix potholes, but certainly when we see $120+M being generated by the UUT (at the current levels), we do need to ask: “what is that money actually buying us?”

In this morning’s Post there is an article about the PA City Council making plans to put the question of a 25% increase in the City’s Hotel Tax to the voters. The article points out that the Council is not putting a sunset on this tax increase, and it is saying that the money could be used for other projects.

Making the point one more time—unless the ballot language locks down the purpose of the tax six-ways-from Sunday, the "new" money will go into the General Fund and get used as the Council sees fit—no matter what they might say about it in a public setting before the vote.

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Posted by eyes wide shut
a resident of Adobe-Meadow
on Feb 28, 2014 at 2:27 pm

Wayne - here's the document on the website that you (and the Weekly reporter) should read: Web Link

If the City is saying they are proposing rescinding the UUT as they are changing the terms of the lease/covenant, then they will probably get away with it.

If they choose not to renew the lease/covenant but don't remove the tax, that will be a problem and is likely to lead to another measure on the ballot given the way the UUT was sold at the time.

The city is walking a fine line here between the letter and spirit of the measure.

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Posted by David Pepperdine
a resident of Another Palo Alto neighborhood
on Feb 28, 2014 at 3:26 pm

Utilities is City Council's golden goose that just keeps giving.
It's an end-run around Prop. 13.
And the UUT is just one more example of government run amok. There is no indication from the City Council that they are going to rescind this tax if they get a better deal from the school district.

If they don't play it straight with the voters, the should be booted out!

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Posted by Joe
a resident of Barron Park
on Feb 28, 2014 at 3:57 pm

[about the transient occupancy tax, TOT]

> Making the point one more time—unless the ballot language locks down the
> purpose of the tax six-ways-from Sunday, the "new" money will go into the
> General Fund and get used as the Council sees fit—no matter what they
> might say about it in a public setting before the vote.

In Palo Alto the TOT is already in the general fund and accounts for 11.5% of the City's general fund revenue (see: Web Link).

Proposition 218 places taxes in two categories: general and special. General taxes require >50% approval by voters, special taxes require >2/3's approval. Requiring a detailed list of projects for the TOT increase would place it in the special tax category. It's not likely that the City could get the necessary two-thirds approval for a special tax.

Furthermore, since the increase in the TOT is planned to fund Certificates of Participation (COP), mixing special and general taxes isn't possible. A COP offering will require a growing revenue stream, with the City paying lower borrowing costs by showing a larger pool of possible funds. So, as crazy as it sounds, the City has this wired so that the more specific they are, the worse things will be for the tax payers of Palo Alto!

There was already a discussion about COP's in another thread. In my opinion, this is "weaponized debt" for Palo Alto's finances that should be kept in a bunker built on the City's former landfill site and buried alongside the grand plans of our city council.

The good news is that you can use Proposition 218 to repeal the UUT, which wasn't possible before 1996.

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Posted by Susan
a resident of University South
on Mar 1, 2014 at 8:09 pm

When the lease agreement was first reached, the sum which the City was giving the School District was 3 million a year. And It was indeed an idea for helping out the School District. There should be a roll-back of that current 7+ million figure at least part-way, in addition to the 1.8 figure, or the City could ask the District to reciprocate and help the City out by giving the City funds.

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