BASIC
AID NEWSFLASH VI (24-Apr-2003) Addendum A2
* * * * * * *
TAKE THE MONEY AND RUIN? Many
fear threatened school budget cuts could affect real
estate values
from Palo Alto Online.com, Wednesday, April
9, 2003
by Carol Blitzer
If Gov. Gray Davis’ proposal to take property taxes
allocated for local schools becomes law, more than school
administrators will worry about how cuts will affect
school quality.
Economists, real estate agents and homeowners —
both current and future — are concerned that the
so-called “Palo Alto premium” will disappear.
It’s the belief that the area’s high-quality
schools are worth a premium price that has some home
owners settling for a smaller house at a higher cost
in Palo Alto, noted Mandy Lowell, president of the Palo
Alto Unified School District and a 13-year resident
of Palo Alto.
Why else would people be willing to pay more than $800,000
for a tract house in south Palo Alto that would go for
$550,000 in Redwood City?
“Part of the fabric of our community is the attractiveness
of people who value education so highly,” Lowell
said, noting that access to Palo Alto public schools
is even cited for recruiting new faculty to Stanford
University.
Real estate agents have touted the schools for years
as a compelling reason to buy in Palo Alto.
“The reality is real estate in Palo Alto definitely
for the past 25 to 30 years has been driven by the strength
of the schools,” said Leannah Hunt, co-chair of
the Palo Alto Realtors Association and a Coldwell Banker
agent.
With the district facing the biggest financial crisis
in its history, real estate agents and home owners fear
that housing prices could slide. Davis proposes grabbing
$126 million in property tax revenue generated by basic-aid
districts, of which Palo Alto is one of 60. For the
district that could mean a 25 percent reduction in its
$108 million budget, a cut that could mean substantial
reductions in the kinds of programs and staffing levels
that have made the district so attractive.
Economists and real estate agents project that such
a hit, would definitely affect housing prices and sales
in the area, though there is little consensus on how
far prices would fall.
“I don’t think the real estate market will
go to hell in a hand basket because of these cuts, but
it will have a real impact, if we were to lose that
status,” Hunt said.
Many in the local real estate community, along with
the Chamber of Commerce, are working with the schools
to defeat the governor’s proposal, she added.
In the past several weeks, real estate agents have
passed out literature at open houses to let prospective
homebuyers know what they can do to be proactive in
dealing with the proposed cuts — including writing
letters to their local assemblyman, contributing to
the Palo Alto Foundation for Education and getting more
information from the PAUSD Web site.
Carol Carnevale and Rosemary Squires, agents with Alain
Pinel Realty in Menlo Park who do most of their business
in Palo Alto, feel strongly that “property values
are linked to the quality of the public schools, which
is why the price of Palo Alto properties has been higher
when compared to other communities,” said Carnevale.
Although Carnevale and Squires have not seen potential
homebuyers dropping out of the real estate market because
of fears about next year’s budget, they say that
property values are intrinsically linked to the value
of the schools.
“To the extent that budget cuts impact the quality
of education, it stands to reason that there will be
a negative impact on property values,” said Carnevale.
Jennifer Sherer, a neighbor of Lowell’s, and
her family moved from San Francisco to Palo Alto because
they wanted to live in an area with good public schools.
“We could have gotten much more in Atherton,
but we chose Palo Alto for the schools and the neighborhood
feeling. Palo Alto is a magnet for families with children.
There’s not that gated feeling,” she said.
“We rationalized the prices because we’re
not going to be spending the money on private-school
tuition,” she added.
Longtime Palo Alto resident and economist Richard Carlson
sees a lot of families basing their home buying decisions
on the schools.
“People now pay a premium to live in Palo Alto.
…Go across the creek from me and look at the same
home in Los Altos — there’s at least a $200,000
differential.”
If the schools were to make drastic cuts, slicing away
advanced placement, music and arts programs, Carlson
— who chairs Spectrum Economics Inc. in Mountain
View, as well as Palo Alto’s Utilities Advisory
Commission — said, “People would think,
‘Why not buy a place in Mountain View or Los Altos.
Instead of that million dollars in Palo Alto, why not
buy for $800,000 or less in Mountain View?’ ”
Gavin Wright, William Robertson Coe Professor in American
Economic History at Stanford, served on Committee 2000,
which looked at projected demographics in the district
in the 1980s. At that time, he learned that “real
estate agents are said to be the most eager consumers
of test scores because they use them in their work.”
He, too, is concerned that changes of the magnitude
proposed by the governor would have an adverse effect.
“If you were to cut the budget by 25 percent
that would be a big enough jolt to affect property values.”
Although he couldn’t pin it down to specifics,
he cited the idea of communities investing in their
schools as a “fundamental driving force for American
public education. ... That connection has become weaker
because so much of the funding comes from the state.
“I justify it as an economist as a way for affluent
people to stay in the public-school system.”
“Housing values are high because outsiders are
willing to pay a premium to live here, and that excess
will taper off,” noted Stanford University Emeritus
Professor Henry Levin (and William Heard Kilpatrick
professor of Economics and Education, Teachers College,
Columbia University), who served on the PAUSD board
in the 1980s.
“I would not be surprised if a cut of 20 percent
in the budget of the PAUSD led to a 20 percent reduction
in housing values. I think that would be in the range
of expectations.”
His successor at Stanford, Susanna Loeb, assistant
professor of education, agreed that one could expect
some change, but thought 20 percent a bit high. She
pointed to a study of Michigan schools where a district
with $100 more in per-pupil spending had .4 percent
higher real-estate values. But, she did not know of
any studies that looked at what happened to the real-estate
market when districts had their budgets radically cut.
She could foresee a 4 or 5 percent change in property
values.” It’s hard to know. It could also
lead to an increase in private schooling for Palo Alto
residents,” she said.
Noting that the worst-case scenario could not play
out overnight, economist Carlson could see a future
proposal for a local tax hike.” But the next governor
could take that away too. It’ll be much more difficult
to pass a tax hike to make it up,” he said.
“We’ve long expected we’d lose the
basic aid. I think we’ll lose that and keep our
property tax. That hurts but you’re not cutting
into the bone,” he added.
As for Mandy Lowell, she’s focusing on minimizing any
cuts, to keep the schools strong. As she says, ” There’s
no ocean view in Palo Alto. It’s the schools.”
Carol Blitzer can be reached at cblitzer@paweekly.com.
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back to BasicAid
Newsflash VI
Addendum A1: “Unlikely
Allies May Lose School Funds” (Los Angeles
Times article)
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