BLOG: A Lesson for Our School District from the Euro

There are obviously many things that can be learned from the current Euro crisis but one that our local school district may want to take to heart is the need to think things all the way through and plan for contingencies.

Not to necessarily contradict our school board and I do see real value in having our district’s superintendent live inside the district boundaries but is a blunt instrument to achieve a fairly simple goal. The two big issues associated with the entry of Greece into the euro was a) ignoring the potential for something to go wrong and b) not having any mechanism to address that something (i.e., a club without a means to eject someone). In purchasing a house for our superintendent the school district is making a series of assumptions and should consider the consequences of those assumptions not turning out as planned.

I like Dr. Woods and this has absolutely nothing to do with him—a good business decision should simply consider all contingencies and think beyond current incumbents. Let’s run some scenarios: The whole point is to offer below-market rent and unless there is some unique exclusion this rent subsidy is likely considered taxable by the IRS for both employee and employer (FICA) purposes. Have all the tax consequences been factored into the computation? Assuming that the rental subsidy is taxable for the purposes of the IRS, does that also classify it as compensation for the purposes of CalSTRS pension calculations? If so, has the pension cost been factored into the computation? A rental property requires maintenance, the reality is that lawns need to be mowed and toilets unblocked. Is it planned that school maintenance staff provide those services? If yes, is that cost effective and are there any considerations regarding our insurance coverage?  Secondarily, if the property is being maintained by school staff does that mean we are putting a superintendent in the strange position of being a renter who can also instruct maintenance staff to paint their rented house’s kitchen? If not, who is managing this property?

Properties require periodic maintenance and upgrading—one of the major concerns at our schools is their earthquake readiness. Based on pictures, it seems that the proposed house was built quite a while ago. Are we now potentially purchasing a new property, literally housing some of our school children that would not meet the earthquake standards we are applying to our schools? Is there a liability in the event of an earthquake? 

Unfortunately, there are a lot more of these questions. Bizarre as it is, purchasing a house logically reduces the district’s long-term funding in that as a the real estate taxes are being paid out of school funds. The board’s current plans to pull forward bond funds by increasing real estate taxes will actually cost the school district money on its own property. Taking it to the extreme, if the school district bought every house in the city it wouldn't have a cent to run our schools. In purchasing a house, we both incur the cost of the house and lose the real estate taxes for that house.

Now let’s make things really interesting. Let’s say our next superintendent (after Woods retires) moves into the school district’s house along with his/her family. Our next superintendent turns out to be the proverbial axe murderer and does in fact kill someone, is convicted and put in jail. The logical conclusion is that the school district would then need to evict the jailed superintendent’s family, including children in our own schools to make way for the replacement. I can only imagine the L.A. Times article.

Although, some of these scenarios are far-fetched, I am a great believer in "decide in haste, repent at leisure."  If the objective of our school board is to ensure superintendents live within our district, a better way may be to offer a simple housing allowance.