With just six weeks left before the expiration of a lease agreement that has transferred approximately $140 million from the city to the school district over the last 25 years, the city council and school board have finally reached agreement on a new five-year lease that begins to wean the district from what has become an outdated and lopsided arrangement.
The two public agencies have been at an impasse for almost two years because the school district, which today receives more than $7 million a year under the expiring lease, has insisted that there be no changes from a deal worked out in 1989 when the district needed financial rescue from the effects of declining enrollment.
Back then city leaders rallied to help the district by entering into an agreement that was essentially a funding scheme designed to transfer city funds to the financially strapped school district. To raise money to pay for it and various city infrastructure projects, voters passed a 5 percent utility tax.
The deal had three components: The school district agreed not to sell off or redevelop its then-surplus school sites, the district provided space (not funding) for after-school child care at each elementary school and the city agreed to lease the closed Cubberley High School, which at the time was entirely owned by the school district. (Today the city owns 8 acres in the northeast corner of the site, including classrooms and the tennis courts, while the school district owns the rest of the 35 total acres.)
The city has subleased space at Cubberley to a variety of users, including Foothill College, 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 has been taking a bath on this deal and with the school district's current strong financial condition the city council correctly decided to seek to rein in the lease terms.
The city wanted to eliminate the $1.86 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 have since been re-opened as schools or are lucratively leased by the district to private schools. It also wanted to end the cost-of-living increases that have steadily driven up the lease costs.
The deal reached this week, which is expected to be formally ratified by both the school board and the council, successfully eliminates the $1.86 million annual payments, sets an annual 3 percent rent escalator and partially protects the city from the loss of more than $1 million in rental income when Foothill College vacates its space at Cubberley by sharing the impact with the school district, subject to a complicated formula.
The city also agrees to allocate the $1.86 million per year it has been paying the district for the covenant to a fund for repairing, renovating or improving the Cubberley property, and both agencies are committing to develop a long overdue master plan for the site before the five-year lease extension runs out at the end of 2019.
We are especially pleased to see this provision, which will keep pressure on both agencies to finally plan for the long-term future of this valuable publicly owned property.
City Manager Jim Keene and Superintendent Max McGee deserve credit for getting this deal done after a lot of foot dragging by the school district, which tried to argue that voter passage of the utility tax 27 years ago obligated the city to provide funding to the district under the original formula in perpetuity.
It is unfortunate that the positive outcome of these negotiations was marred by the comments of school trustee Melissa Baten Caswell, who misleads the community by suggesting that the school budget will need to be cut as a result of the deal and that the schools will have to "figure out how to work with less operating funds in order to be successful for the students going forward."
In fact, the school district's finances are in the best shape they've been in for decades due to large increases in both property-tax revenues and reserves, and the effects of the lease renewal will only be to modestly slow the rate of increased spending by the district.
The renewal of the Cubberley lease is a win for the community. An even bigger win will come when the school board finally commits to redeveloping the site for one or more schools, thereby enabling a definitive plan to emerge. Until that occurs, this immensely valuable piece of property will continue to be an underused, outdated and deteriorating symbol of government ineffectiveness.