Purchasing a house is a big decision for anyone and in the case of a public entity such as the Beverly Hills Unified School District, it creates a number of policy questions that need to be addressed.
Subsequent to my , I’ve been asked—“Well, how much will this cost?” I haven’t been able to find an analysis published by the district’s administration and know that BHUSD’s Finance Committee has not had an opportunity to review any numbers, so I’m going to do my best.
Based on what’s been published in local news sources, it seems the plan is to borrow the entire purchase price under a 100 percent mortgage and that the district’s purchase of the house removes it from the tax rolls.
So here goes:
Using round numbers, a $1.5M mortgage at 3.5 percent interest means the monthly payment is $10,723. A number the school district has used is that 17 percent of real estate taxes go to the district—using a $1.5M sales price and the traditional 1 percent of sales prices as the real estate tax, the total real estate tax if sold to another buyer would be $15,000 per year. Using the 17 percent district share (which I think may actually understate the case) would mean a school tax loss of $2,550 per year.
Now unless your experience is different from mine, the mortgage is really just the first expense in owning a house rather than the last—it’s the little things that add up to a lot of money. As homeowners we just put them in the back of our mind and prefer not to consider. However, they are real costs and can’t be ignored by the district. Let’s just say lawn care and gardening is $2K a year and that a conservative allowance for painting, maintenance, etc., is $8K/year—this particular house may have been remodeled, but was built in 1927 according to its listing page and the maintenance over time could easily be more.
Why is all of this important? Because our district is in the business of educating our kids and although we can discuss long-term investments, the reality is that the schools run on cash. So far the running total for the BHUSD’s purchase of the home at 220 N. Doheny Drive is around $141K/year and I am certain this is conservative—no legal fees for rental agreements, no property management fees, employee taxes, employer taxes, pension costs, etc. Granted that some of this may be offset by rental income, but that is undetermined. The other part to be considered is what happens when Dr. Wood’s kids all go off to college and if he’d rather live in a condo—we’ve already had that conversation in our family.
If our district is considering investments, I know that the BHUSD Facilities Advisory Committee (I’m a member) has previously discussed how we could relocate the district’s administrative offices and free up the triangle parcel on Moreno Drive for a new pool or tennis courts. Every architect our district has hired has identified that parcel as being better used as part of a high school master plan.
Unfortunately, I’m out of town so won’t be able to attend Tuesday night’s board meeting but to my thinking the discussion should be regarding how best to use approximately 1-2 teachers’ salaries—for what it’s worth I’d place a small wager that the first year cash expense if the district does buy the house is north of $200K. Wearing my business hat, it might very well be the case that buying an investment property is the absolute best thing.
Please note that I couldn’t possibly guarantee any of the above estimates but sure would like to see all official numbers and the alternatives.
It is easy to dismiss other’s plans and if the objective is to ensure our superintendent can live in the district, I would think a housing allowance of say $2.5K/month ($30K/year) would do the trick, which is presumably close to the under market rental benefit of the to-be purchased house. Importantly, an allowance can be easily turned off if circumstances change. I’ve always liked the old saying “using a sledgehammer to crack a walnut” and this house purchase just might fall into that category.