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09-18-18 Item #17 School Impact ReportV ALLCO SPECIFIC PLAN SCHOOL IMP ACT ANALYSIS Tier 2 with community benefits density bonus Prepared for: Prepared by : SCHOOLHOUSE SERVICES Economists and Planners (650) 373-7373 September 2018 TABLE OF CONTENTS SUMMARY I. ENROLLMENT IMPACTS ......................................................................... 1 Background Residential Student Generation Enrollment Impacts Enrollment Capacity of Cupertino District Schools Enrollment and Capacity of Fremont Union District Schools II. CAPITAL FACILITIES COST AND REVENUE IMPACTS ................................ 12 Facilities Costs Revenue Impacts-Development Fees Development Subject to Impact Fees Voluntary Benefits Comparison of Capital Facilities Costs and Developer Mitigation III. OPERATING REVENUE AND COST IMPACTS ................... ; ................. 19 Operating Costs Operating Revenues Other CUSD and FUHSD Revenues Comparison of Operating Costs and Revenues Scltoolltouse Services September 2018 I. ENROLLMENT IMPACTS Background Earlier in this year (2018,) The City of Cupertino contracted with Schoolhouse Services to conduct an analysis of the enrollment and fiscal impacts of development per Vall co Specific Plan alternatives on the local school districts. Subsequently revised plans have been proposed and a plan termed "Tier 2 (with 'community benefits density bonus')" is now being considered by the City. The title refers to the density bonus (here most critically in additional housing units) balanced by greater community benefit commitments by the owner/developer. This report is a replica of the framework of the earlier report, but addresses the impacts of Tier 2 (and does not include infonnation about the impacts of the alternatives included in the prior report). This Specific Plan alternative, like the alternatives considered in the prior report, is for the Vallco Special area, the 58 acre site of the current Vallco Shopping Center on Wolfe Road at its intersection with the Interstate 280 freeway. A Specific Plan can be envisioned as a planning document that implements General Plan policies and may also act as the zoning for an area. A General Plan, and its accompanying zoning map, assign land use categories usually for all areas of a city specifying the land uses allowed. As its name implies, a Specific Plan, usually for a relatively small portion of a city, is most often used for an area where mixed land uses are involved. It is more specific than a General Plan about the land uses allowed, in this case describing the alternatives primarily in terms of the amount of each of the four principal land uses included in the Plan. However, a Specific Plan usually is not as definitive as a project plan, which typically includes, for example, specific buildings and their locations. Tier 2 is a mixed-use development. It would require the demolition of approximately 1.2 million square feet of existing retail space (plus some support space) on the site, most of it vacant or underutilized, along with associated parking garages . The maximum number of housing units is 2,923 units, the minimum amount of commercial/retail space is 485,000 square feet (including a minimum of 25,000 for a Fremont Union High School District Center, the maximum amount of spaces for office and for office amenity are 1.5 million and 250,000 square feet respectively, the maximum number of hotel rooms is 339, and the minimum public (on ground level) open space is six acres. Building heights could vary from 45 fee to 150 feet, essentially from four to near 15 stories. These constraints are listed in the table below. Schoolhouse Services 1 September 2018 Val/co Tier 2 School Impact Analysis Land Use Amounts Land Use Constraints Maximum Residential 2,923 (Number of Units) Minimum Commercial/Retail 485 ,000 (Square Feet) Maximum Office 1,500,000 (Square Feet*) Maximum Office Amenity 250 ,000 (Square feet) Maximum Hotel 339 (Number of Rooms) Minimum Public Open Space 6 .0 (Ground Level Acres) Heights 45' -150' (Depending on Location) *Includes 25,000 square feet Fremont Union High School Di strict Adult Education Center and/or High School Innovation Center Residential Residential space is the largest amount of space in the Vallco Tier 2 Plan. It is also the space that directly affects school enrollment. The 2,923 units are estimated to have an average interior area of 1,000 square feet. With circulation (hallway), lobby and office included, a total floor area of about 3.65 million square feet is estimated. The characteristics of the units will be a major detenninant in the number of students residing in them . Major considerations are pointed out here, with more detailed design matters receiving more attention later. The residential buildings will be in an urban mixed-use setting, likely in four to seven or more story buildings with residential over ground floor retail. It is expected that at least 50% of the units will be apartments, i.e. each unit in a building constituting a single property, which would mean that the units be rented. Up to half of the units are expected to be condominiums, i.e. with a plat map that makes the units individual properties that can be bought and sold (or even rented). The default assumption in the fiscal analysis in this report is the fiscally conservative assumption that the units will be apartments, though any significant differences that would follow from the units being condominiums will be pointed out and analyzed. Some of the units will have to be more affordable than the rent levels , or sales prices, the current market will suppmi; these units are referred to as "Below Market Rate" or "BMR" units. The City requires a minimum of 15% of the residential units in a development greater than six units , be set aside as affordable and that percentage is assumed here. The required level of affordability Sc/too/house Services 2 September 2018 Vallco Tier 2 School Impact Analysis differs between apartments and condominiums. For sale BMR units have to be provided in a mix of 50% moderate income and 50% median income and for rent BMR units have to be provided in a mix of 60% very low income and 40% low income unless the applicant proposes a different alternative which receives the Council's approval. The City does not have any requirements for Extremely Low Income housing units but these could be provided as part of the very low income category. In this case , the developer is proposing to develop 40 units for persons with Extremely Low Income and developmental disabilities. While requirements for Below Market Rate units apply to all development , there is no requirement for age-restricted housing units. As a part of the proposed Development Agreement, the developer has agreed to providing 80 senior age-restricted housing units in addition. Student Generation The project is located within the school district service areas of Cupertino Union Elementary School District (CUSD or Cupertino District) and Fremont Union High School District (FUHSD or Fremont District). It spans North Wolfe Road, which is the dividing line between the Collins Elementary School and Eisenhower Elementary School attendance areas. It is in the Lawson Middle School attendance areas. The project is in the Cupertino High School attendance area within the FUHSD. The next closest high school is Lynbrook High School. Some students residing in the Cupertino High attendance area attend Lynbrook. This report considers the enrollment impacts on these schools and the fiscal impacts on the two districts . A projection of new student enrollment is the critical factor identifying the potential impact of the proposed development on the impacted schools . Student generation rates (SGRs), the average number of students per new housing unit, are the key factor for the projection of enrollment into the future. (For example , 20 elementary students residing in 100 housing units exhibit an elementary school SGR of 0.20 students per unit.) Multiplying the number of new units by an appropriate SGR results in a projection of the number of students from the units that will be generated by the units. Different housing types generate different SGRs. Single family detached units with private yards usually generate the most students. Within the range of apartments and condominiums , however, student generation can vary significantly, with the sizes , the design, available amenities and the marketing of the units being major factors . The majority of newer apartments and condominiums in the Cupertino area are not designed for families. Most of these units are smaller, ranging from studio and loft units to predominantly one and two-bedroom units. They are usually in multi- story buildings and lack private yards . However, if located in a highly rated school district, relatively large apartments and condominiums , especially if they are in a family-friendly setting, can generate as many students as single family detached units. Schoolhouse Services 3 September 2018 Va llco Tier 2 School Im p act Analysis SO Rs of Recent Residential Development in Cupe1iino Enro ll ment Projection Consultants (EPC) has been the demographer for both the Cupertino District (elementary and middle schoo l enrollments) and the Fremont District (high school enrollment) for many years. As part of its work the finn detennines student generation ( counts the number of students) for a large number of relatively new housing units of various housing types . The EPC surveys are the logical place to start in estimating the SORs for Vallco alternatives. The most recent survey covered 284 attached units (units in multi -unit buildings). (A limited number of bui ldings with generally larger units and /or that appear to be designed to accommodate families are not included in this sample; they have been grouped with single family homes in a separate sample for EPC's analysis.) The survey by EPS found an average SOR for the CUSD (kindergarten through eighth grade) of 0.32 students per multi -family residential unit, or approximately one student in every three homes. The average high school SOR (for the CUSD portion ofFUHSD) was 0.08 per unit in multi-family buildings . (The buildings analyzed include some below market rate (BMR) units , but no buildings entirely of BMR units .) Unfortunately, these averages are for only two buildings, the only multip le-unit buil dings that have been completed in the last few years . The individual SORs of these buildings are therefore also relevant. Table 1-1 shows the SORs of the two developments and their combined SOR. (Since they are weighted by their number of units, the Nineteen800 units are the primary detenninant of the average). Table 1-1 SGRs in Comparable Developments Development Unit Number of CUSDSGR FUHSDSGR Characteristics Units large Nin eteen800/Rose Bowl apartments 204 0.33 0.10 average size Biltmore Addition apartments 80 0 .28 0 .04 Both Projects 284 0 .32 0 .08 Sources : E11ro/1111 e11t Projection Co11s11 /ta11ts . The "Nineteen800" apartment complex, also known as the "Rose Bowl", is adjacent to the Vallco Special Area. Its 204 units have 68 CUSD students, an SOR of 0.33 and 21 FUHSD students, an SOR of 0.10 . It should be noted that these units are on average significantly larger than the average size of units built in the decade before them, indicating that the Nineteen800 development SGRs are higher than the expected SGRs from new units of more average size . The 80 new units in the Biltmore Addition apartment development at the intersection of Blaney Schoolhouse Services 4 September 2018 Val/co Tier 2 School Impact Analysis Avenue and Stevens Creek Blvd. have almost as high an elementary school SGR, presumably reflecting the relatively kid-friendly enviromnent in the adjacent older portion of the total Biltmore complex. This enviromnent, however, is not much of a factor for households with high school students and the relatively small size of the units is a serious deterrent to such households; the FUHSD SGR for the Biltmore Addition is 0.4 , less than half of that for Nineteen800. For both complexes most of the tenants moved in a couple of years ago. Rents have escalated significantly since then; it should be expected that units coming on the market in the next few years are likely to have even fewer households with children. SGR Variations We know from many studies that ce1tain characteristics are often associated with adult oriented complexes (and hence relatively few students). These include: • The developments include more studios and one-bedroom units than larger units with two or three bedrooms; • The units are relatively small, in particular lacking larger kitchen/family eating areas , but expensive. Families can usually get more for their money in older buildings and alternative locations ; • They tend to be in taller buildings, with fewer or no units at the ground level; • They are generally in a mixed-use, and not a residential, environment; • They lack yards and have limited access to play structures and areas for pre-school children, and/or lack open spaces with turf for elementary school-age children; • There is generally no more than one assigned parking space per unit ; • They are marketed for their sophisticated adult life style ; • To make living at such a high density attractive , they include features such as physical fitness centers , party lounges, business centers, gated entrances , etc., all oriented to adult preferences, but adding to the price. They do not include child care facilities. The development under the Vallco Specific Plan generally matches the characteristics listed, though the average size of the residential units is not particularly small. The General Plan envisions the development in the Vallco Special Area to be in a mixed-use fonnat with residential uses on upper floors with retail and active uses on the ground floor and encouraging a mix of units for young professionals that would like to live in an active "town center" environment. Since the proposed units, whatever the alternative, will be situated in the midst of an urban commercial enviromnent; they are more likely to appeal to adults than to families with children. The buildings are envisioned to be four to seven or more stories tall , with the ground floor being commercial. Most important, the units will likely be expensive. The market for apartments is a primary consideration. The wild success of technology (including internet) firms , many of them young companies , has created a demand for young engineers and entrepreneurs , with relatively large salaries as a result. The housing supply is inadequate and rents have escalated tremendously. Many of these tech employees can afford the high rents , though many have to co-rent to do so; Schoolhouse Services 5 September 2018 Val/co Tier 2 School Impact Analysis for example, two people sharing a two-bedroom unit, or four people sharing a larger unit, each with his/her own room/space. It has become very difficult for young families to complete for units in the heart of Silicon Valley. We do not know about the specific features and amenities that will be included. These will be determined by their target market, including whether the units will be marketed to younger families. Most of the projects built during the last decade have generally not seen families as their target market; it is possible that these units will not either. (None of the many pictures shown on internet sites for the Nineteen800, Biltmore, Hamptons and Main Street projects show a child or children-specific amenities, whether within a unit or elsewhere in the complex.) We do know the average size of the units and, as noted above, this is a factor that strongly influences student generation. Studios and one-bedroom units relatively seldom satisfy the needs of a household with school-a ge children. Two-bedroom units provide a bedroom for one or two children, and with more children a three-bedroom unit is almost a necessity. The interiors of the units are to average 1,000 square feet , larger on average than those in the nearby Biltmore, Main Street and Hampton Apartments. This size suggests more two-bedroom units than one-bedroom or studio units , and perhaps some three-bedroom units . The Nineteen800 complex is a mix of two-and three-bedroom units. In contrast to the complexes mentioned above , they average about 1,300 square feet in size for two-bedroom units (partially because they typically contain two bathrooms) and the three-bedroom units are above 1,500 square feet. These sizes are considerably more suitable for households with children than the proposed Vallco units. In summary, the Vallco units would offer units that would meet the needs of some households with children but, on the whole, not provide the space sought by the majority of such households. The setting would also be a negative for households with young children. Furthermore, households with children would have to compete for the very expensive units with other potential tenants often with multiple high incomes . The above analysis leads to the SGR projections for the three scenarios shown in Table 1-2 . The SGRs shown are not those found in any of the projects described above, but are based on the SGRs of those projects adjusted for the differences in the nature of the units and their setting. Schoolhouse Services Table 1-2 Valko Tier 2 Projected SGRs Elem entary (K-5) SGR Middle (6-8) SGR Total CUSD SGR High School FUHSD SGR Source: Schoolhouse Services. 6 Tier 2 0.19 0 .06 0.25 0.06 September 2018 Vallco Tier 2 School Impact Analvsis Enrollment Impacts With appropriate SGRs we can proceed with the calculation of the emollment generated from the Specific Plan alternatives. Table I-3 shows the calculated student enrollment impact resulting from the project three to ten years after construction of the units. Table 1-3 Estimated Enrollment Impact Retail aml Residential Elementary (K-5) 555 Middle (6-8) 175 Total CUSD 730 FUHSD 175 Source: Schoolhouse Services. Given the assumptions described above, Tier 2 is projected to generate for Cupe1iino Union Schools approximately 555 students in the elementary schools (grades K-3) and 175 students in the middle schools (grades 6-8), a total of 730 students. It is projected to generate for Fremont Union Schools about 175 students. It should be remembered that these projections ae not precise; the actual emollment generated could vary up or down significantly from these numbers, especially since we are talking about perhaps a 10 year construction period. In particular, it should be remembered that student generation is still falling as rents and condo prices are increasing; thus , the number of students projected is more likely to be too high than to be too low . Enrollment and Capacity of Cupertino Union District Schools District-wide Enrollment A discussion of the capacity of schools needs to start with a consideration of the pattern of capacity versus emollment of the district as a whole. The Cupertino District has been a rapidly growing school district. Emollment has increased almost every year, going from 15 ,571 in the fall of2001 to 19 ,194 in the Fall of 2013 , an increase of more than 20% accommodated without additional schools in the District. This increase in emollment overcrowded many of schools, particularly in the northern and northeastern portions of the District. A different emollment trend has become evident in the last four years and is projected for the next five years (the period of Enrollment Projection Consultants projections for CUSD). The · EPC Fall 2017 study shows an October 2017 emollrnent of 18,001, a decline of almost 1,200 students over the last four years. Without counting any students that would be attending from Vallco development, the finn projects a further decline of 1,478 students district-wide over the next five years , for a total drop of about 14% from when emollment peaked. (EPC's report shows a decline of 1,257 students , but that includes 221 K-8 students from an assumed 700 Vallco units , an assumption EPG cautions as speculative.) Schoolhouse Services 7 September 2018 Vallco Tier 2 School Impact Analysis Two main factors appear to be responsible for this decline. One is a long understood and anticipated maturation of households whose students are graduating and moving on. This process has been ongoing over the last decade, particularly in the southern half of the district, but the resulting loss of sh1dents was in the past more than compensated for by the growth in young families in the northern portion of the district. The other factor causing a loss of students is relatively new and accounts for the majority of the decline. Rapidly rising rents are resulting in young families being priced out of the district. Rising home prices are also making it much more difficult for young families to move into the district, though they do not price out existing homeowners and thus have less effect. Many of the households with the financial resources to move into the district are young tech employees, many not yet married and relatively few with school age children. EPC sees this factor continuing to · reduce enrollment over the next five years. This is the second year that the EPC report has not forecast growth beyond the five-year period, reflecting the finn's uncertainties about kindergarten enrollment counts and the mid and longer tenn picture. In the long tenn the young tech workers will be older; a decade from now, many will be married and with children in the household. Additionally, rising values could lead to more home sales by older households in the district, with the buyers being tech employee households , including workers who currently choose to live in San Francisco because of its more urban life style, but with school-age children will likely come to prefer a more suburban environment with good schools. Elementary Schools Against the district-wide overall picture, attention must be given to (1) what is happening in the elementary schools compared to the middle schools and (2) the differences in the various parts of the district. Without counting any students that would be attending from Vallco development, EPC projects a further decline of 582 elementary students District-wide over the next five years. It observes that this decline could be partially offset by a projected increase of 182 K-5 students from a hypothetical 700 Vallco unit development, which would make the projected decline only 400 students. (EPC cautions that any assumption about the number of units built at Vallco in the next five years is speculative.) The decline would be even greater except for the projected construction of 1,200 housing units (not including units from the Vallco project), which EPC projects to generate about 300 elementary students. (The projects containing the 1,200 units are identified in EPC's report to the District.) The rate of decline will not be the same throughout the district, differing among three areas of the district. The majority of the schools north and northeast ofl-280 (in the Hyde and the eastern part of the Cupe1iino Middle School attendance areas), where most of the new development is occurring, will remain at about current enrollment from their attendance areas. Schools in the Schoolhouse Services 8 September 2018 Vallco Tier 2 School Impact Analy sis central area lying below I-280 and Bollinger Road (the Lawson attendance area) are projected to experience moderate enrollment declines from their attendance areas. The schools in the southern portion of the district have already passed their peak enrollment and have a continued decline projected in the future. North Wolfe Road is the dividing line between the Collins (Cupertino) and Eisenhower (Santa Clara) attendance areas . The Vallco Special Area encompasses property on both the east and west sides of North Wolfe Road. CUSD anticipates that, consistent with District practices , the majority of the elementary students generated by the project would be enrolled at the Collins (more closely located) or Eisenhower Elementary Schools, with others attracted to programs elsewhere in the Di strict. A small number of the students generated (but not included in our enrollment impact projections) may also study at private elementary schools not a part of the Distiict. The relationship between a school's enrollment and the count of students residing in the school's attendance area needs to be explained. The Cupertino District has developed programs that are located in schools with available capacity, generally schools in the south part of the district; CLIP, the Chinese Language Immersion Program, is an example. Many students participating in the program are drawn from attendance areas in the northern/northeastern and central tiers of the district, lessening the pressure on these schools. Also, Special Day Class (SDC) programs are located in the southern schools, again drawing some students from the more crowded schools. Finally, there are situations in which students attend a school in a nearby attendance area, shifting enrollment south and lessening the pressure on the over-crowded schools. All of these practices have some inherent disadvantage, but it is a much more favorable resolution than either having the northern schools even more crowded or having fewer voluntary choices of schools. Collins Elementary currently has only 36 more students residing within its attendance area than attend the school, perhaps about average for schools in the central portion of the District when the factors in the preceding paragraph are considered. Looking ahead, the number of students residing in its attendance area is projected to decline by 72 students over the next three years. Eisenhower, in the northeast portion of the District, has more students (173) residing in its attendance area than attend the school and it is projected to have about the same number of students residing in its attendance area five years from now as it currently has. The total elementary enrollment generated by Tier 2,, 555 students, is clearly large compared to the space projected to be avai lable in the two schools in the five-year forecasts; it would be quite difficult to add more than a relatively small portion of these students projected for Tier 2 to Collins and Eisenhower enrollments at that time. However, EPC projects that the enrollment decline will continue after its five-year forecast window, freeing up more space to accommodate students generated in the majority of the 10-year construction period. On the other hand, there is little reliability on projections more than a decade in to the future. In the worst case scenario, that enrollment stops declining after five years , contrary to the Schoolhouse Services 9 September 2018 Va/Leo Tier 2 School Impact Analysis demographer's expectations, the accommodation of the majority of the projected 555 students would have to be viewed in terms in of the District-wide projected five-year decline of about 600 students (without any students from Vallco). That would mean more pressure on schools in the northeast portion of the District, requiring program enhancements, allowing options to enroll in alternate schools with capacity and /or attendance boundary adjustments to acconunodate most of that enrollment in schools outside of the northeast schools. Middle Schools Growing enrollment in the school district was until recently threatening to overwhelm the capacity of CUSD middle schools. Now that is changing. This school year's enrollment in the middle schools is 339 student below last year's enrollment. Without counting any students that would be attending from Vall co development, the finn projects a further decline of 896 middle school students District-wide over the next five years. (An enrollment of 39 students from a hypothetical 700 Vallco unit development, an assumption EPG cautions as speculative, would reduce the decline to 857 students.) The four largest middle schools (Cupertino, Kennedy, Lawson, and Miller) have Fall 2017 enrollments of between 1,228 and 1,427 students. The other school, Hyde, is much smaller, with an enrollment of 972 students. At the Lawson and Miller schools, that enrollment includes a significant net in-migration of students, 127 and 149 respectively, from other school attendance areas. Cupertino and Hyde Middle Schools export a similar net number of students to other schools. In the next three years, however, enrollment from the attendance areas of each of the large middle schools is projected to decline, ranging from 120 to 227 students. (Enrollment from the Hyde, a smaller school, attendance area is projected to' remain at approximately the current level.) These declines allow for more flexibility in distributing students generated by a large new development, consistent with District practices, than would have been .the case prior to the change in enrollment trends. The Vallco Special Area is in the Lawson Middle School attendance area. Enrollment from the Lawson attendance area declined 122 students from 2016 to 2017 (October counts) and is projected to decline by an additional 120 students by 2020. Seventeen classrooms of pennanent construction have been added in the past few years at the Lawson and the nearby Cupertino Middle School campuses, adding substantially, about 600 students, to their emollment capacity. and relieving overcrowding. The additions at Lawson and Cupertino Middle Schools and the decline of almost 900 students (without Vallco development) suggests that the District has the capability to absorb the approximately 175 middle school students that would result from Tier 2, even more so if the decline continues after five years. Schoolhouse Services JO September 2018 Vallco Tier 2 School Impact Analysis Enrollment and Capacity of Fremont Union High School District Schools The Fremont Union High School District currently has an October 2017 enrollment of 11 ,000 students attending its five comprehensive high schools . EPC expects this to remain essentially constant for the next two years. At that point the enrollment decline described above for the middle schools will begin moving to the high school level. Assuming no development at Vallco and therefore , no students being generated, a decline of 990 students residing in the District is projected for the next four years , October 2019 to October 2023 . (EPC's report shows a decline of 901 students , which includes a projected increase in 89 students from a hypothetical 1,110 Vall co units, including 410 units in the sixth year, an assumption EPG again cautions as speculative.) The Vallco Special Area is located in the Cupertino High School attendance area. Enrollment from the Cupertino attendance area is projected to decline by 187 students over the next six years , not including any students from Vallco development. (EPC's projections for FUHSD are for six years, to the 2023 /24 school year.) Lynbrook High School attendance area is adjacent to the Cupertino attendance area. Enrollment from the Lynbrook attendance area is projected to decline by 334 students over the next six years, which (not considering any other factors) would drop the school to an enrollment of about 1,500 students. The "Lynbrook Supplemental School Assignment Plan" adopted by the FUHSD addresses this matter, allowing some students from the Cupertino High School attendance area to choose to attend Lynbrook High School. Staff have calculated the enrollment capacity of the five comprehensive high schools to be 11,272 students; that capacity is slightly above current enrollment. It should be understood that the capacity calculation reflects various factors, especially including current financial constraints. For example, it assumes that average class size for almost all classes is 30.1 students. This is significantly above the national average and, presumably, the FUHSD would lower class sizes , and thus require more classrooms, if more adequate funding were available. Cupertino High School is calculated by District staff (using standards as noted above) to have an enrollment capacity of 2 ,566 students. Fall 2017 enrollment at Cupertino High School is 2,273 students, moderately below that capacity. A total of 2 ,370 FUHSD students resides in its attendance area. It is projected that in the Fall of 2023 , the attendance area will have about 98 fewer students in its attendance area, bringing its enrollment to 2 ,175 students (assuming 97 students continue to attend elsewhere in the District). While increasing enrollment has brought FUHSD to full utilization of the capacity of its schools, the enrollment decline of about 1,000 students projected over the next five years as the smaller grade cohorts move into their high school years will free up some enrollment capacity. The Tier 2 impact of 175 high school students would not be insignificant. It would call for planning to accommodate it, but doing so would not appear to be a problem. Schoolhouse Services 11 September 2018 II. CAPITAL FACILITIES COST AND REVENUE IMPACTS This section estimates the cost of facilities to house the number of students generated by Tier 2 development and the revenues generated by that development. It should be understood that these are one-time costs and revenues , the revenues being statutory development fees levied at the time of construction and the costs being school facility construction costs incurred when enrollment capacity is provided. Given an estimated 10-year construction schedule , the revenues and costs would occur over a decade. And it should be noted that , especially given the inflation in property v alues , the calcul ations are not precise. Revenue Impacts -Development Fees Development fees constitute the only mandatory capital facilities revenues to school district resulting from development. California law provides for these fees on residential and non- residential development as a partial source of funding for the costs of accommodating the students resulting from the development. The maximum fee amounts were originally conceived of as providing one-half of the cost of facilities to accommodate additional students , though they typically fall short of this share. The initial fees authorized by state legislation, effective beginning in 1987, are set forth in Education Code Section 17620(a)(l), "The governing board of any school district is authorized to levy a fee , charge, dedication or other requirement against any construction project ... for the purpose of funding the construction or reconstruction of school facilities .... " Even more critically, the section states "A city or county ... shall not issue a building pennit for any construction absent certification by the appropriate school district that any fee ... levied by the governing board of that school district has been complied with, .... " The imposition of these fees , now usually referred to as Level 1 fees, is subject to statutorily prescribed rules . One of these limits the fees to maximum amounts. These amounts are adjusted for inflation, most recently in January 2018 to $3 . 79 per square foot for residential development and $0.61 per square foot for c01mnercial/industrial (C/I) development, which includes almost all private non-residential development. (There are also even lower fees for some very low employment land uses, such as attendant-controlled parking structures.) A minority of school districts in the state are eligible, b ased on factors such as overcrowding and debt , to levy higher residential fees, referred to as Level 2 (and Level 3) fees. Few of the districts in the Cupe1iino area are eligible to levy these fees . The same 1998 law that authorized these fees set forth in Government Code Sections 65995 .5 et seq ., made it clear that a project 's compliance with a fee program adopted by a district constituted mitigation of the project 's impact; no other mitigation can be required. Impact fees are not taxes . They can only be levied if the governmental agency demonstrates that its services will be negati v ely impacted if the impacts of the development are not mitigated. Both Schoolhouse Services 12 September 2018 Vallco Tier 2 School Impact Analy sis CUSD and FUHSD have adopted documents justifying the fees they levy. For decades the Cupertino Union and Fremont Union High School Districts have been pushed to have available the capacity to accommodate a continually increasing enrolhnent; fees were levied for the purpose of adding enrollment capacity beyond that provided by existing buildings. Now, as described in the infonnation about enrollment above, the Districts can look ahead and see that enrollment from existing homes is projected to be decreasing. They will probably not, at least in the near to medium distant future , be faced with the need to accommodate more students. This has allowed them to focus on the need to replace and refurbish old and /or obsolete facilities. The above analysis has made it clear that the primary task for CUSD and FUHSD in having adequate capacity is replacing, refurbishing and enlarging existing facilities that will otherwise become deteriorated or obsolete and unavailable to house students from new or existing homes. Government Code Section 66001 (g) was amended specifically to recognize the inclusion of costs "in order to (1) refurbish existing facilities to maintain the existing level of service" in the detennination and expenditure of fees to mitigate development impacts. A possible further need is the addition of a small amount of capacity where possible at campuses that already have full enrollment in order that additional students from new development will not cause or increase overcrowding. The State Allocation Board (SAB) adjusts maximum fee amounts biennially in January for changes in the cost of construction, with the most recent adjustment having occurred in January 2018. (The Class B cost of construction index used by the state board rose about nine percent between December 2015 and December 201 7.) Where two school districts, such as CUSD and FUHSD, each serve a portion of the kindergarten through twelfth grades , the fee revenues are split between the districts. FUHSD and its elementary feeder districts have an agreement as to how fee revenues are to be shared. Per this agreement, CUSD is allowed to collect up to 60% of the $3.79 maximum fee amount, or $2.27 per square foot of residential development. FUHSD is allowed to collect 40% of the maximum, or $1.52 per square foot of residential development. The maximum fees on non-residential development are $0.37 and $0.24 per square foot for CUSD and FUHSD respectively. Development Subject to Impact Fees Table II-1 lists the building areas subject to development fees. The infonnation about the square footage of the vaiious components of the project shown in Table II-1 can be multiplied by the development impact fee amounts to calculate the fee revenue that would be generated by Tier 2 development, as shown in Table II-2 . Schoolhouse Services 13 September 2018 Vallco Tier 2 Voluntary Benefits Table 11-1 Development Subject to Fees (Square Feet) Residential Interior Space p er Unit Non-interio r Space p er Unit 1 Numb er of Units Total Residential Space Non-residential Office Hote /2 Comm ercial/R etai!3 Civic4 Support Jnfrastructure5 Credit for Spa ce D emolis hed Net Non-residential Space Total Space 1 /11cl11des hallways, lobby, etc. 2 339 hotel rooms 3 Retail, restaurants, etc. Tier 2 1,000 250 2 ,923 3,654,000 1,750 ,000 213,000 485 ,000 100 ,000 (1 ,208 ,000) 1,340,000 4,994,000 4 Community meeting space or facilities, unspecified 5 Loading, facility, amt security areas and central plant Source: City of Cupertbw School Impact Analysis The law establishing the ability of school districts to levy impact fees was not intended to provide revenue adequate to fully mitigate the impact. In a few cases , developers offer to provide benefits in addition to the required fees to lessen the impact. The previously proposed Hills at Vall co project was an example of this, as the developer offered to fund significant improvements . desired by CUSD and FUHSD. Tier 2 specifically involves the consideration of voluntary benefits provided by the developer in consideration of the increased density allowed in the alternative. The benefits being considered are described on The City of Cupertino website and include the payment of $14.25 million to CUSD and providing for FUHSD a 25 ,000 s.f. space, for a 34-year lease te1111 at no-cost, for use as an adult education center and/or a High School Innovation Center (or a cash value of $9.5 million.) Schoolhouse Services 14 September 2018 Val/co Tier 2 Facilities Costs Table 11-2 Development Impact Fee Revenue Tier 2 Residential Square Feet 3,654,000 CUSD Fee Revenue @ $2 .27 $8 ,295 ,000 FUHSD Fee Revenue @$1.52 $5 ,554 ,000 Non-residential Square Feet 1,340,000 CUSD Fee Revenue @ $0 .37 $496 ,000 FUHSD fee revenue @$0 .24 $322 ,000 CUSD Total Fee Revenue $8,790,000 FUHSD Total Fee Revenue $5,876,000 Total Fee Revenue $14,667,000 CUSD students 730 CUSD Revenue per Student $12,040 FUHSD students 175 FUHSD Revenue per Student $33,576 *Numbers may 11ot add due to rounding, here as elsewhere. ** Impact Fee based 011 2018/2019 lmpact Fees adopted 1/24/18. School Impact Analysis This section of the report addresses the fee revenues of Tier 2 for CUSD and FUHSD as described in the last few paragraphs and compares this with the cost of renovated or new facilities to acc01mnodate the students generated from Tier 2 . The analysis of school enrollment impacts in Section I projects that 555 additional elementary, 175 middle school students, and 175 high school students would be generated by Tier 2. The discussion above described the primary approach that will be taken by CUSD and FUHSD to house these students will be to refurbish and replace aging and /or obsolete existing buildings, an approach specifically set forth as acceptable for use of development fees in California law. CUSD has completed projects in the last three years that provide infonnation on the cost of this approach . The replacement of the old CUSD offices with a new two -story building with 20 classrooms and a music room at Lawson Middle school provides a comparable for the cost of replacement with a new building of pennanent construction. The 21 rooms cost $9.6 million in hard construction costs and $2.8 million in associated "soft" costs, for a total cost of $12.4 million. That cost was incutTed beginning four years ago. Based on the cost of construction index used by the California State Allocation Board (SAB), which oversees state school grants and developer fee limits, it cunently would cost 16.6% more due to inflation, a cost of $14.46 Schoolhouse Services 15 September 2018 Vallco Tier 2 School Impact Analysis million. Classrooms average very close to 1,000 square feet per room ; adding 10% for hallways , etc. would bring the square feet of building space to 23,100 square feet. The cost is therefore estimated at $626 per square foot. This is comparable to costs of other pennanent construction projects in the two districts. Much of what CUSD has to do to have adequate capacity in the future is to replace aged relocatables (also referred to as portables or modulars). It purchased and installed 10 new modular classrooms at a cost of $3.39 million in 2015 and 2016. With an estimated 10,000 square feet of space in the units , the cost is $339 per square foot. The SAB 's construction cost index has increased 10.3% from the average of2015 and 2016 costs to the 2018 cost, increasing the current cost to replace aged modular classrooms to $374 per square foot. Capital projects within the FUHSD also provide information about the cost ofrefurbishing or replacing educational space to maintain enrollment capacity in the future. This infonnation is in the form of costs for projects to be undertaken in 2018 and 2019. A list of planned projects includes four classroom buildings, only one of which, the addition of four classrooms , does not involve demolition of an older building. Another project involves the demolition of six classrooms. An equal number of planned projects involve renovation or replacement of space in buildings such as gym/field house, cafeteria, etc. (some of which have a minority of the space devoted to classrooms). The per square cost of the three buildings are very similar and average $726 per square foot. The fourth classroom project, the four-room building, has a much higher cost per square foot. The refurbishment (including installing up-to-date technology) in non-classroom building projects generally have much higher per square foot costs, more often than not making refurbishment more expensive in the long run than replacement with new construction. The cost of $726 per square foot is conservatively used as the basis for determining the capital cost impact of students from new development. This cost is in the same range as the $626 cost of similar CUSD projects. We do not know what proportion of projects in the two districts will be modular/relocatable and what percentage will be permanent construction. To have a reasonable number that can be used to project Tier 2 costs , we use a simple average of the three costs, implicitly assuming modular buildings will account for one third of the square feet refurbished or built by the districts. The assumed cost is therefore $575 per square foot. The assumption that enrollment capacity needs will be met through refurbishing and replacement means that no cost for land is included. The California Depa1tment of Education (CDE) uses floor space per student guidelines as a component in detennining the dollar amounts in its new construction grant program and these numbers can be used to project the amount of floor space necessary to accommodate students from new development. The floor spaces are 73 square feet for elementary, 80 square feet for middle school students , and 95 for high school students. Schoolhouse Services 16 September 2018 Val/co Tier 2 School Impact Analysis The above information allows for calculation of an estimated capital facilities cost for the three General Plan alternatives. Table II-3 repeats Table I-3 , showing the number of students at each grade level generated by Tier 2. Table 11-3 Estimated Enrollment Impact Tier 2 E lementa,y (K-5) 555 Middl e (6-8) 175 Total CUSD 730 FUHSD 175 Source: Schoolhouse Services. The estimated emollments shown in Table II-1 are converted into the amount of educational space needed to be refurbished or replaced to maintain its availability for the students. This is shown in Table II-4. Elementa ry (K-5) Middle (6-8) Total CUSD FUHSD Source: Schoolhouse Services. Table 11-4 Space Impact (Square Feet) Square Feet Per Student 73 80 95 Tier 2 40 ,500 14 ,000 54,500 16 ,600 The last step is to convert the square feet of space into cost impact, utilizing the average cost estimate of $575 per square foot. The results are shown in Table II-5 . Elemen ta ry (K-5) Midd le (6-8) TotalCUSD FUHSD Source: Schoolhouse Services. Schoolhouse Services Table 11-5 Cost Impact (millions of dollars) Cost per Square Foot $575 $575 $575 17 Tier 2 $23 .30 $8.05 $31.35 $9.56 September 2018 Vallco Tier 2 School Impact Analysis Comparison of Capital Facilities Costs and Developer Mitigation Table II-6 below shows the calculation of the difference between the development impact fees likely to be generated by the Specific Plan alternatives and the Construction Cost Index adjusted facilities costs per student for each of the altemati ves. Table 11-6 Development Impact Fees Versus Facilities Costs* (millions of dollars) Tier 2 CUSD Fee Revenues $8.79 Facility Costs $31.35 Net Capital Impact ($22.56) FUHSD Fee Revenues $5.88 Facility Costs $9.56 Net Capital Impact ($3.68) *Both fee and revenue costs are 011e-time, rather tha11 a1111ual. Source: Schoolhouse Services The table shows that impact fees do not cover the costs of facilities. It should be remembered that these costs are the cost of renovated or replacement facilities for the additional students. The impacts reflect the relatively high cost of school facilities at CUSD and FUHSD campuses. The deficits would be even higher, if not for being partially offset by the fee revenue from the non-residential development portion of the project. The deficits also reflect the design of California law that development fees are only intended to partially mitigate development impacts on school districts. Schoolhouse Services 18 September 2018 III OPERATING REVENUE AND COST IMPACTS Operating Costs Operating costs are annual costs and are matched with revenues received annually. Almost all operating costs tend to increase with enrollment, if educational standards are to be maintained. These costs include personnel costs like salaries and benefits for certificated and classified employees, which comprise the large majority of a district's budget. Therefore, the cost per student estimate is simply a calculation of the revenues available for operating expenditures divided by the number of students, as shown in Table III-1. CUSD FUHSD Table 111-1 Per Student Operating Costs Operating Budget $185.2 million $146,900 ,000 Number of Students 18,001 11 ,042 Per Student Cost $10,290 $13,300 Sources: CUSD a111l FUHSD 2017-18 budgets and Schoolhouse Services The cost impact of the Proposed Project, and each alternative, on each district is calculated as the cost per student times the number of students . This is shown in Table III-2 . CUSD Stude nts Table 111-2 District Operating Costs CUSD Costs (@ $10,290 per student) FUHSD Students FUHSD Costs(@ $13,300 per student) Source: Schoolhouse Services. Operating Revenues Cupertino Union School District Tier 2 730 $7,510,000 175 $2,330,000 Additional students generated by Tier 2 will affect the revenues and costs for the two districts in very different ways. CUSD is what is referred to as a "revenue limit" or a "revenue maintenance" district. Like other revenue limited districts in the state, its property tax revenues are sufficiently low that it is eligible to receive supplemental funding from the state's operating grants program. (Ninety-plus percent of the students in California public schools attend revenue limit districts.) This grant program is now in its fifth year; it folds about 40 funding programs into a single grant program and generally allows districts to allocate the revenue as they see fit. The program can be briefly summarized as follows. Based on the state budget allocation to K-12 Schoolhouse Services 19 April 2018 Vallco Specific Plan School Impact Analysis education for the fiscal year, it is the public school funding level (property tax revenues plus grants) that the state can support in all California districts. Then the state budgeted money supplies the additional funds necessary to each district to fill the gap , in other words , to maintain the state standard implicit in the budget. For each district, the state specified funding level (the Local Control Funding Fonnula or LCFF) depends on total enrollment and the percentage of the enrolled students that are learning English or eligible for free or reduced price lunches. The result of the program's structure is that the total district revenue, i.e., revenues from property taxes plus the revenue limit program , increases proportionately as enrollment increases. Another reality for a revenue limit district is that the increase in property tax revenue from new homes is offset by a comparable reduction in the money from the state; thus higher property taxes do not affect the total of prope1iy tax and state revenue limit funding. It should also be understood that the above analysis is based on the current state grant funding program; this program could be modified in coming years. CUSD total revenue (taxes plus the state grant) due to the current program totals $148 million in this fiscal year budget, or $8 ,250 per student. The federal and state government also supply other funding, generally for categorical programs, and these also tend to increase as enrollment increases, as do the relatively small revenues from several local sources (e.g. interest and transportation fees). Estimated CUSD operating revenues from these sources total $37 million, or $2,100 per student for the 2017-2018 school year. Fremont Union High School District FUHSD is one of the relatively few districts in the state that is not a revenue limit district. Its property tax revenue is moderately above the amount below which the state Local Control Funding Formula (LCFF) comes into play and provides grants supplementing property tax revenue. Because there is no state supplement to property tax revenues (in contrast to the CUSD situation), District revenue does not increase when additional students are enrolled. However, · when new development generates additional property taxes, the District's revenues increase . The increase in property tax revenue is equal to the District's share of the property tax rate times the fair market value established by the Santa Clara County Assessor. Table III-3 shows the calculation of the assumed assessed valuation for Tier 2. The assessed values are based on per unit and /or per square foot market values estimated by Schoolhouse based on recent property sales . However, it should be noted that at this time , the markets are changing rapidly. Current sales are to a large extent dependent on a very strong market, but also on historically low interest rates and uncertainty about alternative investments. These, and other, factors could change before construction of the buildings is completed. Also, there are unce1iainties as to how value will be allocated among the buildings; the central plant, for example , has little value in itself, but it is necessary for the income generating buildings. Therefore these estimates should be understood to reflect judgment as much as they reflect statistical data. And the lack of precision in the estimated assessed values should not be overlooked. Schoolhouse Services 20 April 2018 Vallco Specific Plan School Impact Analysis The estimated total fair market value of the buildings of the scenarios, as shown in Table III-3 , is about $6.4 billion. The basic property tax rate per California law is one percent of assessed value; the annual maximum property tax (without voter approved bonds and special taxes) that is estimated to be generated by development of the Vall co Specific Plans is $63.98 million. Residential Table 111-3 Assessed Value Int erio r Space (square feet) 1 Assessed Value p er Square Foot Residential Assessed Value($ millions) Non-residential Offic e, Hotel, and/or Commercial/Retail2 Assessed Value per Square Foot Non-residential Assessed Value ($ millions) Total Assessed Value ($ millions) 1 Table /1-1 Tier2 2,923 ,000 $1,100 $3,215 2,448,000 $1,300 $3,182 $6,398 2 Not i11cltuli11g any Civic, Support lllfrastructure, a11d Parki11g space; their assessed value is mi11or ill comparison a111/ is implicitly included in the value of the other land uses Source: Sc hoolhouse Services FUHSD 's share of the base one percent property tax in the 13-301 tax code area in which the project is located in is 16.7% of the base tax revenue, or $10 .68 million, as shown in Table III-4. This tax revenue generated by the Vallco Proposed Project and the two alternatives amounts to from $48,000 to $221,000 for per student from Vallco . It should be understood that these large numbers for these scenarios reflect (1) the very large property values in prime locations in the South Bay and (2) the fact that residential development is balanced by a large amount of non-residential. The differences in the projected property tax revenue per FUHSD student reflect the difference in the smaller number of students in the Proposed Project compared to the larger number of students in the General Plan Buildout with Maximum Residential Density and Retail and Residential alternatives, which generate many more students. Schoolhouse Services 21 April 2018 Va/Leo Specific Plan School Impact Analysis Table 111-4 FUHSD Property Tax Impact Tier 2 Property Taxes A ssessed Valu e ($ millions) Tax Levy (1 % of assessed value 1) FUHSD Property Tax Revenue FUHSD Share of M(u:imum Tax Levy (16.68 %) Numb er of Vallc o g enerated s tudents Property Tax Revenue per Student Tier 2 $6 ,398 $63,400,000 $10,680,000 175 $61,052 1 State law (per Proposition 13) limits the base tax levy to one percent of assessed valu e. There can be additions to this limit for debt service 011 voter approved bonds. Source: Schoolhouse Services FUHSD receives a modest amount of funding , about 13% of their total revenue, from sources other than its prope1iy taxes. These can most conveniently be estimated of a per capita basis ; the 2017-18 budget anticipates $1 ,700 per student from these sources. F UHSD Students Table 111-5 FUHSD Other Revenues Other Revenue s(@ $1,700 per student) Property Taxes Total Revenue Impact Source: Schoolhouse Services. Other CUSD and FUHSD Revenues Tier2 175 $297,000 $10,680,000 $10,980,000 The voters of both CUSD and FUHSD have approved bond issues for campus improvements. Debt service on the bond issues is spread among property tax payers proportional to assessed value. The current tax rate for CUSD is $0 .000496 per dollar of assessed value. As shown in Table III-6 , the revenue paid by Vall co Tier 2 property owners is $3 .17 million. Similarly, the current tax·rate for the FUHSD is $0.000464 per dollar of assessed value and the revenue levied for debt service on District's bonds is projected to be $2.97 million, about 93 % of the amounts for CUSD. It should be understood, however, that these revenues do not increase the funds available to the school dist1icts. The bond i ssues and associ ated debt service are fixed Schoolhouse Services 22 April 2018 Vallco Specific Plan School Impact Analysis amounts . The assessed value of new development increases the total assessed value, spreading the debt service among a larger tax base ; it does not increase the revenue to the districts . It does decrease from $6.1 million annually, the amount other tax-payers in the districts have to pay. Table 111-6 School District Bond Debt Service Assesse d Valu e ($ millions) CUSD Bo11ds (at 0. 0496 % of assessed value) FUHSD Bonds (at 0.0464% of assessed value) Per Student CUSDB011ds FUHSDBonds Proposed Project $6,398 $3,170,000 $2,970,000 $4,350 $16,960 Source: Santa Clara County Ta x Collector and Schoolhouse Services $2 ,549,440 There is one local CUSD funding source ( other than the property taxes) that does not increase proportionally with enrollment, parcel taxes. Parcel taxes , which total approximately 10% of total District general fund revenues, flow from measures approved by the voters. These taxes continue until the expiration of the voters' authorization, though it is reasonable to expect that they will probably be renewed at that time. Parcel taxes are levied on a per parcel basis. The number of parcels constituting the non- residential land uses is minimal, and that would also be the case if all the residential units are apartments , with each building a parcel. In contrast, any units platted and sold as a condominium would be subject to the CUSD parcel tax of $250 per parcel (housing unit). The annual revenues from 2 ,923 condo units would be $731,000. If half the units are condo, the parcel tax revenues to CUSD would be $365 ,000. Voters in the FHUSD , like voters in the CUSD, have approved a parcel tax; the amount is $98 per parcel. But again, Tier 2 parcel tax revenues will depend on the nature of the residential units . If the units are platted and sold as condominiums, each unit would be subject to the FUHSD parcel tax of $98 per parcel (housing unit). The annual revenues for 2,923 condo units would be $2 86,000 . If half the units are condo , the parcel tax revenues to FUHSD would be $143 ,000. The developers of the proposed The Hills at Vallco project in 2015 had agreed to pay both the CUSD and the FHUSD parcel taxes per unit on the 800 apartment units proposed, making them equivalent to condominiums for this purpose. However, while this is possible , it is an unusual commitment and it is not assumed here nor has it been offered as a community benefit in the proposed Development Agreement. Schoolhouse S ervices 23 April 2018 $2 ,264 ,7 Val/co Specific Plan School Impact Analysis Comparison of Operating Costs and Revenues Table III-7 shows the operational revenues and costs anticipated for both districts as a result of the Proposed Project and the General Plan Buildout with Maximum Residential Density and the Retail and Residential alternatives. This shows the net fiscal impact for each of the three scenarios and allows for a comparison of the fiscal impacts between them. The net fiscal impact in each case is negligible for CUSD; both revenues and costs are assumed to increase approximately proportionately to the increase in the number of enrolled students. For FUHSD there is a large fiscal impact due to the very large property values and hence property taxes in the Cupertino area. To the extent parcel taxes apply, parcel tax revenue increases proportional to the number of units. Schoolhouse Services Table 111-7 Operational Cost Versus Operational Revenue Impacts* CUSD Revenue' Costs' Net Impact Bond Debt Service2 Maximum Possible Parcel Taxes3 FUHSD Revenue Costs' Net Impact Bond Debt Service2 Maximum Possible Parcel Taxes3 Proposed Project $7,510,000 $7,510,000 0 $3,170,000 $731,000 $10,980,000 $2,330,000 $8,650,000 $2,970,000 $286,000 * All costs and revenues shown are a111111al costs and reve11ues 1 CUSD Revenues a11d costs and FUHSD costs are assumed to illcreaese approximately proportio11ately to e11rol/111e11t. 2 Debt service pay111e11ts (a part of property taxes) do 11.ot go to the districts; they reduce the amounts other taxpayers have to pay. 3 Co11do111i11iu111s pay parcel taxes; apartments do not (unless by agreement with developer) Sources: Revenues and costs from the CVS]) and FUHSD budgets, Schoolhouse Services 24 April 2018