Cupertino Schools Scrutinize Housing Development
Silicon Valley Business Journal
Sharon Simonson
February 27, 2006
New home construction in Cupertino -- not an easy proposition in the past -- is likely to become even more expensive and difficult as a vocal
cadre of residents continue to fight to protect their excellent schools, often by opposing new housing.
The resistance is manifesting itself in marathon public hearings before the city council and the planning commission, putting the city and its
five council people in the middle, caught between developers and property owners, regional affordable-housing advocates and constituents who fear an influx of youngsters will degrade their schools.
The contention follows a tense 2005 for the town of 54,000 and is a continuation of a bitter political fight over three ballot initiatives
that polarized residents and commercial property owners last year. Residents supporting the initiatives sought to limit new development to
largely suburban standards, citing the need to protect their schools from overcrowding. The quality of Cupertino schools is seen as a key
component in homes' values.
While they lost in November, the residents won a new respect from policy makers, some of whom were shocked by the strength of their support. Now some of the same activists who carried the initiative flags are continuing to push their agenda.
The pressure, reflected by a rising assertiveness at the Fremont Union High School District, is pushing the council close to the confines of
state law. Except under certain, rare circumstances, California forbids its cities and counties from denying new home projects because of unwanted impact on local schools. Yet the city and its districts have joined for the first time this year to hire Schoolhouse Services Consulting in Redwood City to help them to evaluate just those effects.
At a recent council meeting to consider a development that includes 380 new condominiums -- some suitable for families -- City Attorney Chuck Kilian was forced to rein in council members after they urged Pennsylvania developer Toll Brothers Inc. several times to make "voluntary" contributions to local schools above state-mandated amounts.
The suggestion "does not sound voluntary to me," Mr. Kilian cautioned the board.
"City council has no authority to deny housing projects on the basis of school impacts," Mr. Kilian said. "School impacts are not the business
of planning. I don't agree with it, but that is the law. To require anything over and above what the state law provides violates state law."
The tension in Cupertino between new home developers and existing residents' interests in maintaining the status quo is almost certainly the strongest in Silicon Valley. Cupertino existing-home buyers fork over a substantial premium to ensure their children are enrolled in Cupertino district schools, which are recognized nationally and even internationally for their quality. In January, the median price of a single-family home sold in Cupertino was $229,000 above that of the county's median of $740,000, according to the Santa Clara County Association of Realtors. The median price of a Cupertino condominium or townhouse, at $675,000, was $175,000 above the countywide bar. It is also the highest median price for a condo for any market in the county.
In an ironic circle of events, the housing premium, driven by the schools' reputation, draws developers to the town's doors. At the same time, resident resistance to new homes, caused by a desire to protect the schools, in turn limits new supply, further forcing up home prices
and whetting developers' appetites even more.
In some ways the friction in Cupertino arises from the simple fact that the town has available land for new homes as well as obvious redevelopment sites such as aging industrial buildings -- wrecking-ball candidates valleywide as the economy move farther and farther from even
prototype manufacturing.
In comparison, valley cities such as Los Altos or Los Altos Hills, which also share good schools, generally lack obvious places to build new homes and have almost no industrial base to convert.
Geoffrey Kiehl, chief business officer for the Fremont Union High School District for the past 16 months, says his employer is adopting aggressive new programs to protect its schools and manage their growth. The current capacity of its five sites -- including the vaunted Monta Vista, Lynbrook and Cupertino high schools -- is 10,400 students. While the district has 9,917 kids enrolled today, in the next nine years, it expects to add another 1,200 students based on proposed housing and the data it receives from its two feeder school districts. The high school district includes not only Cupertino, but also parts of Sunnyvale and even some of San Jose.
Last spring, Fremont Union began a "big push" to keep students who are not residents from its classrooms, Mr. Kiehl says. The campaign, which so far has sent 300 kids back to their proper districts, includes semi-annual residency verification. In cases where there is doubt, the Cupertino district is even pursuing "bed checks" -- district visits to student homes and even bedrooms to ensure those bedrooms have the appropriate teenage veneer.
Fremont Union receives almost no state funding to support its operations, deriving nearly all of its revenue from property taxes. It estimates that each student costs the district $7,800 a year to educate, excluding capital or facilities costs. With the increased vigilance surrounding residency, the district estimates it will save $2.5 million a year previously spent educating children not properly in its district, Mr. Kiehl says.
For the first time ever, the district has hired external statisticians to project student head-counts into the next decade, including monitoring plans for new home construction likely to affect them. It expects to revisit its projections every year to determine how accurate they are, Mr. Kiehl says.
The district accepts the historic student-generation rates as established by Schoolhouse Services, he says. But it is concerned that demographic changes in its community will create change. Right now, Schoolhouse says the district gets one new student for every 10 new homes. Residents speaking at public hearings vociferously contest that finding.
"Even a tenth of a percent change in student-generation rates, we will raise our eyebrows," Mr. Kiehl says.
Already, Fremont Union is asking housing developers to give it enough money to expand its facilities as though the counts were off by substantial margins. In the case of one developer, Taylor Woodrow Homes, Fremont Union and the Cupertino Union School District succeeded in gaining an additional $1.5 million in commitments above the $500,000 required by state law for a 94-home plan. The homes are projected to put 20 new students into Monta Vista High School and 51 new kids into the elementary and middle schools.
Taylor Woodrow's contributions garnered praise from the city council and were behind the council's bald requests from Toll Brothers for like contributions.
Right now, the districts assess $2.24 per square foot for every new home and 36 cents a square foot for new commercial and industrial development. The money is to pay for capital investments -- such as classrooms -- related to rising enrollment. Property taxes are supposed to pay for increased operational costs. Union contracts prohibit using property taxes for capital expenses at Fremont Union, Mr. Kiehl says, even though projections for some developments have shown the annual property taxes will be well above the increased costs.
Mr. Kiehl says his district does not want to limit the community's growth, noting that an increasing and healthy property tax base is essential to the district's well-being too. What it does want to do is protect itself from unexpected change.
"Some would say we are holding projects hostage by being opposed to them, but that's not true," he says. "We are simply trying to defend our interests and our students' interests.
"Our community likes it," he says. "We are not looking to the state or the federal governments to solve our problems. We are managing our resources; we are getting tough about who is getting into our schools; and we are being tough with developers and not rolling over, so we are not caught short down the road."
Since the turn of the year, the pressure on the city of Cupertino to approve new housing projects has been particularly strong because new development applications generally stalled last year as developers and city officials awaited the November vote on the three resident-sponsored initiatives.
Taylor Woodrow gave more than $10,000 and Grosvenor, a British real estate company, gave at least $20,000 to the campaign to keep the measures off the city's books. Various Taylor Woodrow executives also coughed up money. Toll Brothers gave $5,000, and at least one of its executives also contributed. Hewlett-Packard Co. forked over $5,000.
The then-Cupertino City Council fought the initiatives, too, and the new mayor, Richard Lowenthal, then a council member, penned checks for thousands of dollars for the same crusade.
Now, Taylor Woodrow wants to build its 94-unit housing development on land owned by Grosvenor. Toll Brothers is seeking permission to build a more than 300-home complex on about 30 acres owned by HP. Vallco Fashion Park's owners, who also contributed to the campaign, want to build an additional 137 condos in addition to the 204 that already have been approved.
Throughout the fight, initiative backers pointed to potential damage to Cupertino schools if housing development was not kept in check.
Across the state, city and county elected leaders generally were relieved to be rid of the sometimes contentious issue of school impact fees on new housing when current California law became effective in 1998 taking cities and counties out of the school-impact business, says Sacramento attorney William Abbott. In practice, however, politics often pushes them right back into the fray because constituents don't accept what they see as a false division of labor.
Mr. Abbott is the editor and co-author of the book "Exactions and Impact Fees in California." He wrote the chapter on school facilities.
Some cities, like Cupertino, are sympathetic to constituents' demands that developers pay schools what the schools believe they need, regardless of the limits of state law. "I am convinced that there is an unwritten and unexpressed pressure to make side deals with school districts to make the school districts happy," Mr. Abbott says. "I have seen communities were the electeds strongly support the school districts, and there are lots of reasons they can find to deny a development."
About two-thirds of Mr. Abbott's clients are developers; the rest are cities and counties.
In his experience, the biggest issue for housing developers is ensuring that they don't find themselves at competitive disadvantage because they've paid more in school-impact fees than a rival down the road, he says.
In the near term, the slowing housing market is likely to put school impact fees under a greater microscope than ever, as developers battle to keep costs in check because they can no longer pass increased costs to buyers as easily as they once could.
Longer term, he expects schools will succeed in persuading the legislature that the current impact-fee structure produces insufficient revenue and must be changed. Currently, the state makes up the difference between the cost of new construction and developer fees by borrowing money, he says.
But ultimately, he notes, "The state has limited bonding capacity."
SHARON SIMONSON covers real estate for the Business Journal. Reach her at (408) 299-1853.
