Of Course Dallas ISD Needs New Offices

DISDadminbuilding

On the school board briefing agenda this week is yet another look at a building that DISD may purchase to consolidate many of its administrative offices — this time the former Belo Building. This follows a recent attempt to do so that got derailed because, hey, our schools need more money, why are we spending it on pretty office towers for Fat Cats!?

This is a colossally stupid way to evaluate such a move. The consolidation is being explored for sound financial and business reasons, all laid out in this report. The takeaway is pretty straightforward: DISD administrative buildings are in need of $221 million in immediate repairs. Given that buying a new building for (in this case) $25 million would not only partially solve that problem (you’d still need to put money in to sell the properties, I assume), AND it would help alleviate the wild-ass inefficiency caused by having 2,000 employees in 2.1 million square feet spread over 32 buildings, it’s a no-brainer.

Which is what I call a sensible plan that brings out the no-brain crazy commenters. You know, the ones who are crafty enough to realize that every business move made by DISD is a plot by our rich overlords. Like frequent DMN commenter “miss edu”:

This is ridiculous! Why can’t this district become progressive (I don’t mean that in a partisan political way) in the way it manages its resources? While consolidation is needed, a downtown skyscraper is a people-unfriendly and outmoded approach. I sense the influence of Rawlings and his cronies, some of whom are undoubtedly after Ross Avenue properties. We need intelligence, we need visionaries to bring this district to its rightful place – instead, we have profiteers and cannibals.

But that’s just one insane commenter, you say? Okay, how about this insightful analysis of a potential office consolidation from Place 6 DISD board candidate Joyce Foreman:

There is absolutely NO FREE parking downtown Dallas. Parents would have to pay to park to visit the administration building and others who would come for any reason would have to pay. How long has this building been on the market and what kind of repairs would it need? What about the millions in fiber optic cable that has been put down recently? Has their been an analysis of what DISD is paying now and what they would be paying? Will DISD have to contribute to the 2 downtown TIFS? How old is the building? The board should be asking many questions before they approve $200,000 to negotiate. The board should also be tired of the administration springing things on them at the last minute.

Which is, of course, a series of silly notions. City Hall requires pay parking; every CBD has little-to-no free parking; 3700 Ross is IMPOSSIBLE to park at during a busy meeting; optical fiber cable is plentiful; yes, the analysis is linked above; any building DISD is looking at, including Belo, is not as old as the buildings where offices currently are, and age only matters in terms of repairs, and we’ve established the enormous repairs needed at current facilities, and on and on.

Since you’re sure to see nonsensical arguments against this — all of which will take the form of “Why spend X on Y, when Z needs more money?!” — remember that this is a way that the district is trying to save money long-term and be a more efficient organization.

17 comments on “Of Course Dallas ISD Needs New Offices

  1. Regarding the free parking, at least this location is accessible by rail unlike the current location of DISD headquarters.

  2. I have no problem with DISD selling and moving out of its existing building. However, I do not understand why they would want to be a real estate owner for an administrative HQ building in downtown Dallas. Why doesn’t DISD instead look at options to lease space (there is plenty of space available in the CBD)?

    Very few private sector companies own their own HQ buildings these days. It’s commonplace for HQ building space to be leased under medium- to long-term leases. While the footprint of the Belo building might be a perfect fit for DISD today, their space needs are likely to change in the future. It would, thus, make a lot of financial sense to maintain flexibility on their administrative real estate assets vs. being in the business of sub-leasing space in a building that they own if they decide to trim staff. (And, if for some reason, DISD needs to expand office space … they would retain the option to relocate a larger consolidated office space in the future if co-location of their admin staff truly provides so much benefit.)

    I’m not a commercial real estate expert, so I don’t know if $25 million is a fair valuation for the Belo building. But, ultimately DISD is not in the business of speculating on downtown Dallas real estate values; so it seems to me that they could benefit in the long-run by following the example of most other large businesses to reduce their capital needs. So, I say sell the existing HQ building and put out an RFP to lease the square footage that they need for their HQ/admin staff.

  3. I have a few friends in commercial real estate, and I’ll ask them. Also, I’ll ask a trustee or DISD official why the buy vs. lease preference.

  4. Answer: b/c DISD, like other local govt entities is considered a piggy bank by private business interests. The purchase if good for the current owners and the brokers.

    I love the idea of DISD consolidating into a single building. It’s the right thing to do. But why would any large organization box themselves in by purchasing a large commercial property unless they were going to flip it?

  5. There are a couple reasons why it would not lease. In a lease, the landlord will pass down the taxes to the tenant. In this scenario the would-be tenant is DISD, which is tax exempt.

    The other reason is that incentives are different. What some companies do is buy the land, build the building, and then sell it, but remain tenants because it does help with cash flow, and also reduces its own tax liability (which does not apply to a government entity).

  6. Good point on the ad valorum tax treatment between government and private entities. I overlooked that.

    As you point out, most companies have gotten out of the real estate business by doing sale-leasebacks to gain flexiblity and clean up their balance sheets (accounting rules usually keep these leases from showing up as debt, whereas building purchases are primarily financed with debt which can add stress to credit metrics).

    DISD may not have all of the same incentives to lease as would a private company, but there still could be some real tangible benefits to having flexibility to relocate and resize vs. being responsible for filling an entire buildings (either internally or via subleases). As unlikely as significant change may be, with home-rule and some (ableit limited) discussion of separating DISD into smaller districts on thte table, I would hate to see DISD bind itself to owning a building that it may never be able to sell or re-lease to recoup taxpayer money if something were to change with district administration that left DISD needing less administrative space.

  7. In addition to having to pay property taxes as a tenant but not as a tax exempt entity owning the property, it can also finance its purchase with tax exempt debt at a lower interest rate. Their for-profit landlord under a lease structure will have a higher cost of debt which they will have to pass on in the form of higher rent to DISD.

  8. Thanks, Todd.

    Since you are for Home Rule, why not oppose this until all of your minions are in place?

  9. Let me point out the kind of crap we don’t post on Learning Curve. Todd Williams posts about rent vs. lease for a school district. Then someone comes in with an ad hominem attack about home rule and Williams’s “minions.” It’s childish, stupid, and naive. Take it to the DMN or Observer.

  10. I just deleted a silly, childish ad hominem attack that was posted here. There are lots of blogs that traffic in those. Take your nonsense there.

  11. I get that. If I believed that DISD was held accountable for administrative cost controls the way a private company is, then I’d be more supportive of them purchasing the building. However, DISD’s primary business is (or should be) education. I would prefer that they spend the majority of our education tax dollars on figuring more effective and efficient ways to educate its students. Owning a large HQ property like the Belo building comes with significant costs and potential headaches which can distract their focus from their primary mission … educating its students.

    A few years ago, DISD closed several schools in an effort to reduce costs. I haven’t kept close tabs on their plans for those properties, but I drive past a few on a regular basis and it doesn’t appear that they’ve been successful in selling them to private developers or monetizing them in any shape or form (probably because their tax-exempt status makes the cost of sitting on the property very minimal). Nonetheless, it’s inefficient, and the proceeds from monetizing those properties could be invested in the classroom (or at least add-on to overcrowded schools to reduce the number of “temporary” classrooms which have been around for 20+ years) without increasing taxes.

    As a taxpayer, I just worry that something similar will happen in the case of the Belo building purchase. For example, what if DISD decided to focus on reducing office expense overhead by having certain HQ employees work from home? The ownership of the building may provide them a disincentive to explore such cost saving initiatives which could benefit the taxpayers and children that DISD educates just because reducing staff presence in the building would only minimally impact costs.

  12. So I’m clear (sorry, I’m slow): You’re saying you understand the maintenance costs necessitate a move, but you’re still suggesting that renting vs owning should be explored more thoroughly, based on some of the assumptions above, yes?

  13. DISD didn’t close schools to sell them, they closed them because they were underutilized. There are not plans to sell the properties because they will likely be needed again at some point in time. For example, Hexter was closed in the mid-80s and is now overcapacity.

    Also bond money is not the same as operating money and the district can’t treat it as such. If the district sold Bonham that money wouldn’t be used to expand Stonewall.

    Many people cry that we have enough tax money we need to use it more efficiently– this is a real world example of how to do that. Staff are scattered in buildings that are money pits. The central, transit accessible location is a cherry on top.

  14. Pretty much, but I don’t really have a position on this (not enough information to side one way vs. another). Just curious how DISD is examining and vetting its alternatives. There may well be 100 reasons why buying this building is superior to any other alternatives, but it would be comforting for taxpayers to know that DISD (and its consultants) explored a myriad of alternatives before identifying this choice. Too often, “common wisdom” and “the way that we’ve always done this” prevail in these decision with no real analysis of alternatives. I hope that Miles’ reform-minded leadership extends into how he thinks about such administrative decisions too.

    However, I fear that there were only 2 options ever considered: a) stay in the existing building and renovate or b) move to Belo. A lot of posters here have provided solid reasons for making this purchase vs. staying in the existing building and highlighting advantages of purchasing vs. leasing specific to DISD. Hopefully, DISD has done this and considerably more analysis.