Palo Alto school board meets today on tax shortfall

Superintendent: Action must be 'thoughtful,' 'not reactive'

The Palo Alto Board of Education will hold a special meeting this afternoon to discuss how to address an unanticipated drop in property-tax revenue that has left the school district with a $3.7 million budget gap in the just-commenced fiscal year.

The district learned about two weeks ago from the Santa Clara County Assessor's Office that projected increases in property-tax revenue has dipped to 5.34 percent, significantly lower than the 8.67 percent increase the district relied on in creating its 2016-17 budget, adopted on June 21. The change is due to a rise in assessed properties that are exempt from property taxes, primarily $1.2 billion in exemptions from the major expansion of Stanford University hospitals.

Since budget estimates for future years were built from the now-incorrect assumptions on property-tax increases this year, the district faces a multi-year financial problem that has not yet been quantified by Superintendent Max McGee or Chief Budget Officer Cathy Mak.

Mak said that while she has looked at the impact on the 2017-18 and 2018-19 budgets, it will not be discussed today. She declined to share her projections, stating that that will be done at the board's next meeting on the topic.

If the property-tax increases for the 2017-18 fiscal year are adjusted downward to be 5 percent instead of the budgeted 7.85 percent, the district would face another deficit next year of almost $4 million if the just-approved pay raise for teachers that year was completely eliminated, and more than a $8 million deficit if the 3 percent raises were allowed to take effect, according to calculations made by the Weekly. The problem grows potentially larger in the out-years depending on assumptions about property-tax increases and compensation increases.

"In keeping with the practice of 'seeking first to understand,'" McGee wrote in a staff report, the purpose of today's meeting "will be to provide the Board and community with an understanding of the budgeting process and the context for the difference between the district's property-tax revenue projections" and the most recent estimate from the county Assessor's Office.

Though the estimated total tax shortfall for the current fiscal year is $5.2 million of Palo Alto Unified's $231 million budget, the new projection will trigger a safety-net condition in the new multi-year teachers' union contract that eliminates a 1 percent bonus for teachers when property-tax revenue is less than the district budgeted by 1.5 percent or more. This reduces the actual gap in the 2016-17 budget to $3.7 million.

Mak and McGee have preliminarily suggested that the district make up for the lost revenue this year by pulling $1.2 million from unrestricted, undesignated funds; $1.2 million from bond funds designated for computer updates; $375,000 unused dollars in the budget that had been allocated for the hiring of teachers to accommodate enrollment growth; and not transferring $919,000 to the district's Basic Aid Reserve Fund.

The district does not intend to cut funding that has already been approved to lower class sizes, support full-day kindergarten or use any reserve funds that would result in the reserve dipping below a 10 percent level required by board policy, according to a staff report.

Following a staff presentation on Wednesday, board members will be asked to share their own ideas for how to address the shortfall, according to the staff report.

McGee cautions in the staff report that "while it may be tempting to take immediate action, we are not in an emergency or crisis situation. Action is needed, but it must be thoughtful and deliberate and not reactive."

The district could reopen negotiations with the teachers and classified employee unions on a 3 percent raise promised in the third year (2017-18) of their contracts, which in total provide a 12 percent base salary increase over three years, plus the off-schedule bonuses. (An off-schedule bonus is not added to the employee's base salary.)

Given this, and the fact that managers' and administrators' raises have not yet been settled on for the 2017-18 year, McGee wrote that the district is "able to take a longer view of ways to make up the shortfall."

"In fact managing compensation for 2017-18 and beyond will be of critical importance in assuring that we can continue to provide the highest quality of teaching and learning, equity and access, and wellness and safety for our students," he wrote.

As McGee also notes, the sudden tax shortfall is not a one-year problem, but "will have implications for the longer term."

Though district leadership has characterized the smaller property-tax increase as a surprise, district data provided in the meeting packet shows that in years past, there has been a similar difference in projections from June 1 to July 1, though it has not always been a decrease. (This year, the assessment growth was estimated at 8.62 percent on June 1, then dropped by about 3 percent on July 1.) In 2014-15, the July estimate was 2.82 percent higher than the June projection. In 2013-14 and 2012-13, it was just above 1 percent higher. And in 2010-11, it was 2.79 percent lower on July 1 than on June 1.

This year's change in exemption value was also similar last year: $1.4 billion compared to this year's $1.1 billion, according to data provided by the district.

Total exemption values came in at $9.1 billion this year, compared to $8 billion last year, according to Mak.

Wednesday's meeting will be the first of several McGee is proposing to hold regarding any changes that need to be made to the 2016-17 budget. At subsequent meetings between now and then, McGee suggests that staff will respond to board ideas and present recommendations for changes to the budget. The board will also discuss the budget at a previously scheduled retreat on Aug. 11.

The district's leadership team is also meeting on Aug. 1 to discuss ideas for how to best move forward. Preliminary discussions have included a proposal to put a temporary freeze on hiring non-teaching personnel (with the exception of special-education personnel that the district needs to replace, according to a staff report).

Wednesday's meeting will be held 4-6 p.m. at the district office, 25 Churchill Ave. Read the full agenda here.


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11 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Jul 27, 2016 at 9:38 am

I don't understand this tax shortfall.

The property taxes I pay each year keep going up.

More properties are being sold each year for higher amounts, so it seems to me that the properties are producing more property tax.

More development in Palo Alto must mean more properties to pay property tax.

So if they are getting more money from us in tax, then why is there a shortfall?

20 people like this
Posted by just wondering
a resident of Barron Park
on Jul 27, 2016 at 9:44 am

If the Jissers were able to close the BV mobile home park (where residents/owners are exempt from property taxes) and develop market-rate housing, how much more in property tax would the city expect to see?

32 people like this
Posted by Taxpayer
a resident of Charleston Gardens
on Jul 27, 2016 at 9:45 am

There is a shortfall because the Board gave employees a 9% pay raise a few months ago. That ate up the whole surplus from last year and broke the bank.

15 people like this
Posted by resident
a resident of Midtown
on Jul 27, 2016 at 10:49 am

These two statements from McGee seem to contradict each other:

"Mak and McGee have preliminarily suggested that the district make up for the lost revenue this year by pulling ... $375,000 unused dollars in the budget that had been allocated for the hiring of teachers to accommodate enrollment growth;..."


"The district does not intend to cut funding that has already been approved to lower class sizes..."

If the district cuts the budget to hire teachers for more students, that means bigger class sizes. Yet in the next paragraph the district is saying they won't cut the funding to lower class sizes.

Rather than this inept explanation, just tell the public how many classes will have 24 or less students, and how many classes will have more than 24 students both before the proposed cuts and after the proposed cuts.

Also why are doesn't Max & Mak put the administrators and managers pay increases which they piggy backed on the teacher raises as proposed cuts?

20 people like this
Posted by Barron Park dad
a resident of Barron Park
on Jul 27, 2016 at 10:50 am

Can we re-open the contract with the teacher union that was just signed? It was celebrated at the time of signing as the "first ever multi-year contract" and was presented to us as goodness.

I am upset by the fact that this deficit means we might not be able to implement smaller class sizes, hiring more teachers, develop innovative programs, etc. I am also upset that the budget surplus we had just a few months ago went COMPLETELY to the teacher union.

Our good teachers deserve a raise, for sure, but the recent contract just seems to have gone hard over to their side, without taking into balance the needs of our kids.

1 person likes this
Posted by revdreileen
a resident of East Palo Alto
on Jul 27, 2016 at 11:17 am

revdreileen is a registered user.

Manufactured home owners in California pay local property taxes, "just wondering." I'm not sure what gave you the idea that the residents of BV do not pay property taxes.

16 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Jul 27, 2016 at 12:05 pm

So they haven't actually got a tax shortfall, just a mismanagement of income problem.

They had better not come looking to us for this mismanagement practice.

22 people like this
Posted by Bill
a resident of Barron Park
on Jul 27, 2016 at 12:09 pm

> I'm not sure what gave you the idea that the residents of BV do not pay property taxes.

It's probably that the trailers at Buena Vista average over 40 years old. Manufactured homes purchased new after July 1, 1980 need to pay local property taxes. Older homes pay the VLF (vehicle license fee) but have the option of converting to local taxes if they desire. (See:
Web Link)

The Assessor's web site shows only 6 trailers at Buena Vista on Santa Clara County's tax roll. The net assessed value (after property tax exemptions) ranges from $0 to $21,763 for 2016.

The attorney for Buena Vista's owner claims the value of the property is worth "upwards of $60 million" (see: Web Link). So, yes, there would be significant boost in property tax dollars if the site would get developed.

6 people like this
Posted by caroline V
a resident of Portola Valley
on Jul 27, 2016 at 12:29 pm

For those who still look for answers....
Please watch Naom Chomsky's documentary and explanation:" Requiem for the American Dream"
California is in debt and unlike our President, our Governor and/or State Controller cannot print money.
california debt clock:
Web Link
California failed to repay its federal loans for a second year in a row; (Web Link
Despite our huge debt our government is expanding government jobs and government funded programs for the leading industries: education, healthcare and renewable energy.
this is all confirmed in the financial reports:
Web Link
State controllers Betty Yee's "Comprehensive Annual Financial Reports" : Web Link

Now we have elected and appointed officials speaking out using collaborative and community efforts to convince us we need another tax increase.

40 people like this
Posted by Inexcusable
a resident of Midtown
on Jul 27, 2016 at 12:41 pm

Inexcusable is a registered user.

PAUSD is one of the wealthiest public school districts in the country. We have one of the highest tax rates in California. We get begging letters every spring and fall from the district that take in tens, if not hundreds, of thousands of dollars in donations to the district.

There is simply no excuse for such gross mismanagement, nor for so many administrators who, though already overpaid and underworked, just got salary increases.

Max McGee et al need to go.

11 people like this
Posted by Marc Vincenti
a resident of Gunn High School
on Jul 27, 2016 at 2:20 pm

Marc Vincenti is a registered user.

Wednesday afternoon


My thanks to the Board and Superintendent for convening a special meeting, even during vacation and sweltering weather, to address this urgent problem.

Our teeming high-school class sizes are a misery for students, so I hope the cuts won't include (as suggested), the "$375,000 unused dollars in the budget that had been allocated for the hiring of teachers to accommodate enrollment growth."

New growth without new teachers means classes even more crowded--a worsening of the situation last year that saw, at Gunn and Paly, 407 classes with 30 or more teenagers per room, and 780 classes with 25 or more per room.

We might as well be making our kids do time in overcrowded, mentally-unhealthy County jails.

This, in a city of world-class wealth! It simply doesn't add up! Do we value our youth? Is the price too high? For heaven's sake, we're not some down-at-heel jerkwater Podunkville where the cops run a speed trap to keep the kindergarten in fingerpaint!--not that I'm casting aspersions on that fine mythical town!

Our Board, and especially our Superintendent, have the Valley contacts and the sales skills to pitch adolescent well-being to local deep-pocketed, warm-hearted potential funders as a cause worth their while--especially amid an ongoing crisis of youth mortality.

Reasonable class-sizes are the topmost, #1 proposal of Save the 2,008--the local community alliance, now 508-strong, aiming to bring less stressful, less discouraging regimens to our city's high schools.

Please join us!

Marc Vincenti
Gunn English Dept. (1995-2010)
Campaign Director, Save the 2,008

8 people like this
Posted by What a Farce
a resident of Greenmeadow
on Jul 27, 2016 at 4:18 pm

This is terrible. They are using accounting tricks and spending down $2M of reserves to address a STRUCTURAL DEFICIT. They spent more than we have. Using reserves to address this when the economy is still booming is folly. What will we use when we have 3 years of less than 3% growth?

Plus, 4 of the 5 board members just spent the last several months pounding the table that teacher raises was the single most important thing we could do with our money. Now we are thinking we will give them NO raise next year? What about after that?

The only answer is CUTS. They are trying to hide, delay, etc., hoping people will get bored and go away. And the Board will go along, since they don't want to look like idiots for accepting a reckless forecast AND labor contract. Ultimately, the taxpayers and the KIDS will pay the price, when we can't sustain spending, reserves run out, and we have to make deeper cuts (or raise parcel taxes still further).

Nice going Max. Nice going Booard.

11 people like this
Posted by What a Farce
a resident of Greenmeadow
on Jul 27, 2016 at 5:01 pm

We should all realize that the much bally-hooed multi-year agreement ruined the best possible arrangement for the district - agreeing to raises in arrears, AFTER we know how much money we have. Max's and Heidi's brilliant idea - give raises in advance, so much nicer for teachers!

Of course, most of the world does in advance - but somehow we arranged this great deal, that we now have ruined. I would guess the chances of going back to old are very low - you can't put the toothpaste back in the tube.

Nice going Max, nice going Board.

Like this comment
Posted by Joe
a resident of Another Palo Alto neighborhood
on Jul 27, 2016 at 5:26 pm

> We have one of the highest tax rates in California.

This is not true. Prop.13 sets all tax rates at 1% of assessed value.

8 people like this
Posted by What a Farce
a resident of Greenmeadow
on Jul 27, 2016 at 5:38 pm

McGee said in the meeting, "we are not cutting teachers." But in his weekly message, the first thing they propose to do is "Capturing unused growth teachers in the budget ($375,000)."

Umm, isn't not hiring teachers we need for growth the same effect as cutting teachers?

5 people like this
Posted by Prop 13
a resident of Midtown
on Jul 27, 2016 at 6:27 pm

I thought that the raises were too high and based on wishful thinking, but it's important to understand that PAUSD schools are not exactly awash in funds when compared to “top” school districts elsewhere.

People expect a world class education in PAUSD, yet the funding per student is very average for a US school and LOW when compared to other top performing public school districts.

Prop 13 cut school funding and our kids today are paying for it when the cost of a high quality education is going up much faster than our property taxes.

Our prop tax rates are actually low vs. other states. If your taxes are higher than your friend or relative, it's because the assessed value of your home is higher. Probably in the millions, depending on when you bought your house. Your neighbors with the same size and market value house might pay much less if they have owned for decades. Prop 13 also created inequity in who bears the burden for property taxes.

This is an expensive place to live and raise a family. We all feel it. Homeowners. Renters. Teachers. Retirees.

Let's not make our kids pay for this.

4 people like this
Posted by Hmmm
a resident of Gunn High School
on Jul 27, 2016 at 11:48 pm

Time to review administrative costs, cut administrative waste and trim bloated salaries. (Like that will ever happen.) Cathy Mak has repeatedly underestimated tax receipts, ending up with poorly spent excesses (according to previous Weekly reporting). I seem to recall one year there was millions that got designated for "professional development" with no detail, and no one batted an eye (or figured out if that many millions really went to professional development). Now she is grossly overestimating taxes? The county assessor gives the districts the info they need to be more accurate. Mak is not exactly new at this. I can't imagine any other $200 million organization that would tolerate such poor performance.

25 people like this
Posted by peninsula resident
a resident of Atherton
on Jul 28, 2016 at 10:13 am

Prop 13, a resident of Midtown, wrote:
> Prop 13 cut school funding

Respectfully, this is pretty irrelevant to the issue. PAUSD property tax revenues have been exceeding inflation and student growth. And on top of that, residents agreed to increase the parcel tax.

And keep in mind, the City of Palo Alto had no issues with anticipating the adjustment in tax exemptions, so clearly the data was out there; PAUSD just didn't look for it or listen to it.

In comparison to other nearby high-performing school districts, PAUSD is swimming in revenue. There's really no good excuse for a multi-million dollar shortfall.

Like this comment
Posted by He told you so
a resident of Barron Park
on Jul 28, 2016 at 8:25 pm

The four members who voted for the raise were trying to be nice to the teachers so when they run for school board again, the teachers who live in PA will vote for them. They were just trying to buy their vote. Too bad,now they have to say, Oopsy, Daisy we are not that good at Math and we have to undo the raise. Now I thought that Max was an expert on Math, I guess he is not, he cannot use data to predict the future. I am glad Mr. Daubber knows what he is doing, at least we have one good board member there. Hopefully someone else as good as he will join him in the next term.

Posted by Name hidden
a resident of Duveneck School

on Sep 24, 2017 at 4:13 pm

Due to repeated violations of our Terms of Use, comments from this poster are automatically removed. Why?

Sorry, but further commenting on this topic has been closed.

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