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Jennifer Bestor

Jennifer Bestor

Should California schoolchildren be the state’s interest-free lenders of first resort? Most people would say no. Yet they are.

Should California, in opposition to the equitable school financing principles outlined in Serrano v. Priest, take the most stable, reliable, local funding – property tax – out of the poorest schools? Most people would say no. But we have.

Was Proposition 98 designed to enable money to flow away from education? Most people would say no. So why has Prop. 98 been shoved into the alien role of “guaranteeing” that schools will be “made whole” despite massive incursions into their funding?

Ten years ago, Sacramento sidestepped a financial crisis. It made California schoolchildren its powerless bankers. It took an enormous $5 billion chunk of their property taxes, predominantly from the poorest schools, to service the state’s debts. Sacramento promised – falsely, it turned out – it would repay the funds, that Prop. 98 would force it to do so, completely and promptly. No one said boo.

Over that decade, the value of the lost $5 billion in property taxes has grown to $7.6 billion. Prop. 98,  requiring that the state meet its “guaranteed” level of K-12 spending, has been suspended twice. We are now in the sixth year in which the state has not paid schools promptly, deferring a sizable portion of base funding until after the end of the school year. These interest-free deferrals have cost individual California schoolchildren heavily as schools have had to incur borrowing costs and make cuts in instructional time, staff and programs. And we, California parents, are saying boo – now, when the situation could be reversed and all parties made whole.

Roots of the problem

How did this all happen? “Proposed Initiative Would Give School Districts Back Their Property Taxes” (EdSource, Feb. 14, 2014) explains how Sacramento redirected property tax from schools in 2004 to pay two obligations it was having trouble paying directly: deficit-financing Economic Recovery Bonds and local government losses due to the political decision to reduce Vehicle License Fees (VLFs). The state transferred, first, over $1 billion a year of education-allocated property tax to fund the deficits, then added, second, $4 billion a year to fund the VLF cuts. The first incursion was tied to sales tax growth and had a sunset clause. The second was tied to the growth in property valuation and had no end date; over the decade, it has grown to $2 billion a year more than its underlying obligation. The state promised that Prop. 98 would “make schools whole.”

But how? Who would provide the actual cash? Prop. 98 couldn’t mint money, so Sacramento would have to lower other spending. On what? Corrections? Fire? Police? Debt? Health? Welfare? Highways?

“On what” has become clear: Education. The latest NEA statistics show that from 2003-10, California fell from 31st to 42nd in the nation in expenditures per student (from 90 percent to 81 percent of the national average), while the state climbed from 5th to 3rd in per capita spending on police and fire (after only Washington, D.C., and Nevada; 45 percent above the national average) and from 3rd to 2nd place in per capita spending on corrections (after only DC; 62 percent above the national average). We’re number 8 in debt service; 15th in capital project outlay; 18th in health and hospitals; 27th in public welfare. Only in highways do we do almost (but not quite) as badly as our K-12 schools, where we compete with South Carolina, Utah, Texas and Tennessee – before adjusting for cost-of-living differences. Remember, $7-plus billion of our state General Fund “spending” on schools is simply repayment of state debt.

John Maynard Keynes said, “Owe your banker £1000 and you are at his mercy; owe him £1 million and the position is reversed.” Well, California owes our schools over $7 billion every single year, and our schools are clearly at the state’s mercy.

Starting into the second decade of diversions, we’ve been put on notice that the state will redirect $8.4 billion of stable, reliable, local school funding in 2014-15. Now, you may ask, aren’t we finally getting more money in Prop. 98, and isn’t the governor proposing to end deferrals entirely, so that for the first time in seven years, schoolchildren will be paid on time?

Yes, but in the next breath of his Budget Summary, he reminds us that we’re 4½ years into an economic expansion, which lasts five years on average, 10 at the most. So next year, three fiscal years after a major tax package, schools may finally get what they’re owed on time.

Shaking down poorest districts

And when things get rough again? As it turns out, the poorest counties and school districts are hit the hardest by diverting property taxes from schools to pay off the state’s debts. That would likely recur in the next recession, when Prop. 98 money again gets shorted or deferred.

As evidence, take a critical look at the just-published P1 Principal Apportionments schedule detailing the first $3.7 billion of this year’s total $6.1 billion deferral package:

The poorest counties do worst because of the way the Legislature structured the deal hijacking property taxes from schools in 2004. The diversion was based on population, not county wealth. School districts in low-property-wealth counties like San Bernardino, Sacramento, Fresno, Imperial, Tulare, Merced, San Joaquin and Stanislaus will see a very large percentage of their property tax funding removed, and – thanks to deferrals of their state aid – not see any of these diverted property taxes repaid this school year. (Yuba will lead the pack on June 30, still owed every penny of the $10 million of education-allocated property taxes directed away from its schools – and another $8 million besides.) These counties also experience six of the seven largest gaps in the state between their Local Control Funding Formula 2020-21 target per-pupil spending and their current per-pupil allocation.

Second, poorer districts in richer counties will do badly.

San Mateo, Napa and Marin Counties had relatively frugal county and city governments when Proposition 13 hit in 1978; so they have high property tax allocation percentages directly to their school districts – and enjoy high property values. Hence, they have a number of significant basic-aid districts, funded almost totally through property taxes. Since no property tax is diverted from basic-aid districts, neighboring revenue-limit districts see much higher proportions of their own base property tax diverted: 100 percent in the case of districts like East Palo Alto’s Ravenswood, Redwood City, and Daly City’s Jefferson Elementary districts. So, while San Mateo County districts on average will only see 23 percent of their forced lending unpaid at the end of June, disadvantaged districts wait for much higher percentages of their base funding.

In short, it’s education-in-crisis as usual in California.

Four years ago, a group of parents came together, first in San Francisco. Why, we asked, in one of the wealthiest areas in one of the wealthiest states in one of the wealthiest nations in the world, were we spending so little on educating our children? Being parents (the ultimate outsiders in education), we have spent four years listening to every exhortation and bogeyman explanation possible. In the end, we simply followed the money. And we realized that, as hard as we work to pour it in the top, someone else works twice as hard to suck it out the bottom.

It’s time to say boo. Educate Our State has filed an initiative, the Protection of Local School Revenues Act, to return stable, reliable, growing local property taxes to California’s schools in 2015. Doing so will, in turn, free up an equivalent amount in the state General Fund, allowing the state to pay its own debts out of its own money.

Why can’t we make future school funding announcements about what schools get, not what they’ll have to wait for? Because to us, frankly, it’s not enough that someone else feels they have a better use for our school kids’ money. Interest free. Repayment negotiable.

For over 100 years, the California Constitution has made it clear that education is California’s first funding priority. First.

Jennifer Bestor is the volunteer director of research for Educate Our State, a grassroots, parent-led organization advocating for systemic change to provide all students with a high-quality public education. A California native, Jennifer became a stay-at-home mom after 20 years in banking and high technology. Asked to serve as treasurer of her child’s California public school parent-teacher organization, Jennifer soon found herself answering school finance questions, which meant dissecting revenue flows and property tax diversions.


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  1. Shazam 3 years ago3 years ago

    How does the proposed act generate any funding for education? How does the act make education funding any more equitable? What I'm hearing is that the adequacy of state education funding is out of scope of this effort, but at least everyone can agree on this effort because it will result in more transparency around education spending. My main questions are: why should I get excited about this effort? Why is … Read More

    How does the proposed act generate any funding for education? How does the act make education funding any more equitable? What I’m hearing is that the adequacy of state education funding is out of scope of this effort, but at least everyone can agree on this effort because it will result in more transparency around education spending. My main questions are: why should I get excited about this effort? Why is this fix worth an initiative? No matter how you measure it, CA public education spending is far enough below the national average and so far out of line with states like NY that the deferrals aren’t hiding the real problem. Also, I don’t think that education should be locally financed. Why should I vote for another layer of ties between local property taxes and local schools? Will this significantly improve the adequacy or equity of CA education spending? Is it an important step because it’s the only effort with broad support or is it a distraction?

    Replies

    • Jennifer Bestor 3 years ago3 years ago

      Shazam, thank you for your interest in engaging on this! I will break up your questions so my answers stay within the character limit for comments. Q. How does the proposed act generate any funding for education? A. Next year, $6.8 billion dollars of school property taxes will be removed, disproportionately from the poorest schools, to pay a $4.3 billion state debt. That's a $2.5 billion windfall that, before this initiative, was … Read More

      Shazam, thank you for your interest in engaging on this! I will break up your questions so my answers stay within the character limit for comments.

      Q. How does the proposed act generate any funding for education?

      A. Next year, $6.8 billion dollars of school property taxes will be removed, disproportionately from the poorest schools, to pay a $4.3 billion state debt. That’s a $2.5 billion windfall that, before this initiative, was draining silently out of the funding pool the provides for California education. And that $2.5 billion excess is growing — and growing faster as the real-estate market heats up.

    • Jennifer Bestor 3 years ago3 years ago

      Q. How does the act make education funding any more equitable? A. Please go to the Initiative's website, YesForEducation.org, and look under the "How It Affects Your Schools" tab. Look at wealthy counties and poor ones. Stable, reliable, local property taxes are being taken -- disproportionately -- from the poorer districts in the poorest counties and the poorest districts in richer counties. Why? Because people naively assumed that … Read More

      Q. How does the act make education funding any more equitable?

      A. Please go to the Initiative’s website, YesForEducation.org, and look under the “How It Affects Your Schools” tab. Look at wealthy counties and poor ones. Stable, reliable, local property taxes are being taken — disproportionately — from the poorer districts in the poorest counties and the poorest districts in richer counties.

      Why? Because people naively assumed that “taking property tax away” meant taking it from the rich.

      But that’s not how the mechanism works.

      Remember that the original mechanism for distributing the state’s communal Vehicle License Fee pot collected fees from everywhere, then distributed them based on population. It was a redistribution of tax wealth. But now, we’re not redistributing wealth from the rich car owners to the poor counties, we’re redistributing wealth from school districts to their local governments — as if it were coming from the old communal pool — and, as a result, walloping school districts in poor counties hardest.

      Now, go to the Tax & Revenue Code section 97.70. See how the first pot of property tax that is emptied is the Educational Revenue Augmentation Fund in each county. This fund collects property tax countywide and redistributes it only to the school districts that need state aid — in proportion to their need. So the taxes that feed the needy are the first to be redirected.

      Then, when the ERAF funds run out (as they do in half of all counties), the next specified pool is the property taxes allocated to schools that need state aid.

      Schools that don’t need state aid — “excess tax” or basic-aid districts in high property wealth areas — are exempt.

      So this initiative says, property taxes allocated to education go to education. They are not to be redirected, disproportionately from poorer districts, to satisfy the state’s unrelated obligations.

    • Jennifer Bestor 3 years ago3 years ago

      Q. At least everyone can agree on this effort because it will result in more transparency around education spending. A. Yes! Yes!! Yes!!! Q. Why should I get excited about this effort? A. Because it's plugging a hole in the bottom of the funding pool. Because it's the first funding effort that values stability of funding. And because all the classic efforts have left us arguing … Read More

      Q. At least everyone can agree on this effort because it will result in more transparency around education spending.
      A. Yes! Yes!! Yes!!!

      Q. Why should I get excited about this effort?
      A. Because it’s plugging a hole in the bottom of the funding pool. Because it’s the first funding effort that values stability of funding. And because all the classic efforts have left us arguing about whether California is 40th, 49th, or 50th in the nation in K-12 per-student spending.

    • Jennifer Bestor 3 years ago3 years ago

      Q. Why is this fix worth an initiative? A. Because only a ballot proposition can fix the VLF Swap back-room deal. Immediately upon passage of 'urgency statute' SB 1096 in the summer of 2004, cities and counties secured their allocation of property taxes with Prop 1A -- which allocation was nebulously defined. Did it include these or not? Only a proposition can preclude endless legal wrangling. Yes, it could … Read More

      Q. Why is this fix worth an initiative?

      A. Because only a ballot proposition can fix the VLF Swap back-room deal.

      Immediately upon passage of ‘urgency statute’ SB 1096 in the summer of 2004, cities and counties secured their allocation of property taxes with Prop 1A — which allocation was nebulously defined. Did it include these or not? Only a proposition can preclude endless legal wrangling.

      Yes, it could be put on the ballot by the Legislature. But it would take overwhelming grassroots demands to shift a body that has generally come out of city and county governments, and (with term limits) is increasingly heading back into county governments, to announce that, oops, their predecessors had erred in handing those same governments a $2.5 billion a year windfall.

      Voters, on the other hand, can say, “We’re glad that the windfall tided local governments over the Financial Crisis, but we’ve learned the same lesson that cities/counties did before us, that state funding is fickle. Now it’s time to return stable funding to schools, particularly the poorest schools, and not to keep diverting ever more excess windfall that has to be back-filled out of highly volatile state income tax.

    • Jennifer Bestor 3 years ago3 years ago

      Q. CA public education spending is far enough below the national average and so far out of line with states like NY that the deferrals aren’t hiding the real problem. I don’t think that education should be locally financed. A. You are, of course, entitled to this opinion. However, you mentioned New York's K-12 spending. 46% of NY public K-12 revenue is provided from local property tax funds. 30% of California's … Read More

      Q. CA public education spending is far enough below the national average and so far out of line with states like NY that the deferrals aren’t hiding the real problem. I don’t think that education should be locally financed.

      A. You are, of course, entitled to this opinion. However, you mentioned New York’s K-12 spending. 46% of NY public K-12 revenue is provided from local property tax funds. 30% of California’s is.

      And the other states at the top of the public school revenue statistics: Vermont, Rhode Island, Alaska, Wyoming, Delaware, Pennsylvania, Massachusetts, New Jersey, Maine, and Connecticut? The smaller states (VT, RI, AK, WY, DE and ME) are all over the place: 4.5%, 61.9%, 23.6%, 38.3%, 30.4%, 51.8% respectively — only two are lower than CA. All the larger states provide a significant share of their sizable funding out of local property taxes: New Jersey – 63.4%, Connecticut – 55.8%, Pennsylvania – 54.8%, Massachusetts – 52.1%.

      Before — and immediately after — Proposition 13, when voters actually determined what got property tax, 53% of all property tax in California went to schools. (Like the states that fund their schools adequately.) But the AB 8 shift, a year after Prop 13, jerked a quarter of that (14% of all property tax) out of schools to back fill city and county losses … leaving schools dependent on the state. City and county Redevelopment then drained another 4% of all property tax out of schools, whereupon the State snatched 17% back into the Educational Revenue Augmentation Funds, to put stable, reliable, local funding back into schools. For ten years. Until 2004, when cities and counties figured out how to grab it back again.

      If we want to get back into line with other states, we can’t turn our noses up at local funding going into schools — especially in the name of ‘equity.’ We need all sorts of funding going into schools — equitably.

      (State statistics from the NEA’s Rankings & Estimates 2013.)

    • Jennifer Bestor 3 years ago3 years ago

      Q. Why should I vote for another layer of ties between local property taxes and local schools? A. This isn't another layer of ties. This is just confirming schools' existing ties to the most stable, reliable form of tax funding. Cutting the ties between schools and a third of their most stable, reliable funding has not helped schools. Please go look at the Legislative Analyst Office's graph "Property Tax is Much Less … Read More

      Q. Why should I vote for another layer of ties between local property taxes and local schools?

      A. This isn’t another layer of ties. This is just confirming schools’ existing ties to the most stable, reliable form of tax funding. Cutting the ties between schools and a third of their most stable, reliable funding has not helped schools.

      Please go look at the Legislative Analyst Office’s graph “Property Tax is Much Less Volatile Than Personal Income” to understand what we’re talking about. (It can be found various places including the 11/29/12 “Property Tax Primer” as Figure 13, on page 28.)

      Incidentally, I find it so odd that every low-income group I talk with about this *immediately* understands the value of a reliable income stream — especially if that funding stream is low to begin with. The digerati, meanwhile, argue endlessly about whether deferrals ‘really hurt’ and who should be paid back first.

    • Jennifer Bestor 3 years ago3 years ago

      Q. Will this significantly improve the adequacy or equity of CA education spending?

      A. The Local Control Funding Formula is a solid attempt to address equity while, at least, taking a stab at adequacy. This will improve the odds of actually funding the LCFF with reliable spendable funds, rather than just having it as a goal.

    • Jennifer Bestor 3 years ago3 years ago

      Q. Is the initiative an important step because it’s the only effort with broad support or is it a distraction? A. Protecting Local School Revenues is an important step because it signals that we, the people of California, are watching how exactly schools are funded. We've stopped waiting for someone else to look carefully at what's happening and sort out this mess. We've lost patience with the idea that Proposition 98 will … Read More

      Q. Is the initiative an important step because it’s the only effort with broad support or is it a distraction?

      A. Protecting Local School Revenues is an important step because it signals that we, the people of California, are watching how exactly schools are funded. We’ve stopped waiting for someone else to look carefully at what’s happening and sort out this mess. We’ve lost patience with the idea that Proposition 98 will protect school funding — no matter what money might be siphoned away. We want the pennies that are allocated to schools to go to schools.

      And, if you don’t think this is important, please read the LAO’s fiscal summary of another initiative, #13-0065, which seeks to recreate redevelopment agencies with fewer restrictions than before. Read the fiscal summary.

      Read how schools lose in both Proposition 98 Test 1 years and Test 3 years when a share of property tax is removed from their funding. Realize that there have been three Test 3 years, two suspensions, and one Test 1 year in the decade since the VLF Swap. Then read it again, and realize that there is still $16B in property tax going to schools — that someone else really wants.

  2. Hope Salzer 3 years ago3 years ago

    Thank you, el, Don, Katherine, Jennifer, April, Cinnamon, Jeff, etc for really doing the hard thinking and investigating to understand this issue and debate the solutions. It appears we all may agree that the long-term solution to better CA schools will include some return to a funding system where local entities (school districts and/or counties) would be able to set their own property tax rates and restrictions on increases (or partial exemptions/reductions for those … Read More

    Thank you, el, Don, Katherine, Jennifer, April, Cinnamon, Jeff, etc for really doing the hard thinking and investigating to understand this issue and debate the solutions. It appears we all may agree that the long-term solution to better CA schools will include some return to a funding system where local entities (school districts and/or counties) would be able to set their own property tax rates and restrictions on increases (or partial exemptions/reductions for those low-income or indigent elderly) and where transparency and accountability have more meaning and where the will of the democratic majority is honored rather than the will of the minority (in the case of the budget/revenue supermajority requirement).

    Paul, yes, this initiative will not solve all of the school funding issues which you rightly perceive. However, as several commenters have noted, this initiative will improve transparency (by requiring that the county property tax allocations of schools are delivered with the same timeliness as those of other recipients and thus reported accurately instead of being routinely and grotesquely exaggerated). and it will certainly stabilize school funding to the extent that less-volatile county property taxes (if they are reliably delivered as allocated) will represent a higher proportion of school revenues in state-subsidized districts when the next recession hits (and when, perhaps, weak Prop 98 protections will be suspended, or deferred, again).
    At the very least, putting this initiative on the ballot will prevent the state from commandeering another relatively local source of revenue (as Jennifer mentioned, Prop 1A, authored by the Legislature and approved by 84% of Californians, prevented the state from commandeering any recipients share of the base county property taxes except for K-14 schools’ share), will give the public more knowledge about where, how, and for what their property tax dollars are spent and will, hopefully, help raise civic dialogue.

    Replies

    • el 3 years ago3 years ago

      My local district does not have enough local property tax revenues to fund education of its kids at any acceptable level. As a rural and ag area, most of the properties have not been reassessed and those that have tend to be in the Williamson Act etc. I appreciate Jennifer's legwork - even to slog through a single district's records would be a challenge. I understand in my (small) district deferrals were handled by borrowing … Read More

      My local district does not have enough local property tax revenues to fund education of its kids at any acceptable level. As a rural and ag area, most of the properties have not been reassessed and those that have tend to be in the Williamson Act etc.

      I appreciate Jennifer’s legwork – even to slog through a single district’s records would be a challenge. I understand in my (small) district deferrals were handled by borrowing against reserve funds and also by deferring textbook purchases and maintenance projects, and borrowing against those funds. But a much larger factor was the huge uncertainty in our budget/revenues where the state was expecting the district to set budgets 6 months or more in advance of the time when they’d decide how much money we would get in what funds, and saying “Oh, we might totally eliminate your transportation funds in January.” It was sheer luck that most of those questions ended up breaking our way, plus getting some small enrollment increases.

  3. Paul 3 years ago3 years ago

    Navigio - I support repayment of every penny deferred. Districts that borrowed externally should have priority; principal should be repaid and interest, reimbursed. Districts that borrowed internally should be next, to the extent that they a) built up reserves, as a percentage of revenue, to the statewide average level, before the crisis (prudent fiscal management) and b) drew them down to the minimum level during. Remaining funds should be divided among districts that did not maintain effort, payable … Read More

    Navigio – I support repayment of every penny deferred.

    Districts that borrowed externally should have priority; principal should be repaid and interest, reimbursed.

    Districts that borrowed internally should be next, to the extent that they a) built up reserves, as a percentage of revenue, to the statewide average level, before the crisis (prudent fiscal management) and b) drew them down to the minimum level during.

    Remaining funds should be divided among districts that did not maintain effort, payable only as programs are restored.

    Jennifer – My use of “state level” throughout should make it clear that I realize that (state) voters made some property tax decisions (literal aspects of Prop. 13: tax rate, growth rate, reassessment trigger) whereas state legislators made others (mechanics) — and that the distinction is irrelevant here, because the effect was to end local control.

    I know the history of redevelopment all too well. Here again, my point is that the decision to end it, and the decision about how the property taxes formerly used for it would be allocated henceforth, were made at the state level, not locally.

    You are asking the education community to use scarce political capital to restore a tax allocation scheme that we’ve all acknowledged was arbitrary to begin with. I can’t tell whether you agree that overall education funding — which will remain the same — is adequate. As we have seen with Props. 98, 42, 1A, etc., artificial restrictions on tax allocation give rise to intergovernmental squabbles, but fail in achieving stated objectives. The UNstated objective might be to make the house so unwieldy that it must be torn down. The platform of the Republican Party, to which you belong(ed?), includes reducing public education funding and diverting it to charter and private operators.

    Power interests are rejoicing that we’re arguing whether mommy or daddy should pay Johnny’s allowance this week instead of pointing out that his allowance is too low.

    Replies

    • Jennifer Bestor 3 years ago3 years ago

      Hooray, Paul, I assume our research and calculations are standing up to scrutiny, so now we're down to questioning my motives and political affiliation! The latter is no secret -- Abraham Lincoln called my great-great-great-grandfather a personal friend (they were in the Illinois Legislature together), so I continue to register Republican. However, your Google searches have shown you that the Republicans may not want me. Too liberal. Sigh. And my motives? … Read More

      Hooray, Paul, I assume our research and calculations are standing up to scrutiny, so now we’re down to questioning my motives and political affiliation!

      The latter is no secret — Abraham Lincoln called my great-great-great-grandfather a personal friend (they were in the Illinois Legislature together), so I continue to register Republican. However, your Google searches have shown you that the Republicans may not want me. Too liberal. Sigh.

      And my motives? Is it possible that a California native and mom simply cares about the adequacy and stability of California school funding for generations to come? As an ex-banker and cost analyst, I concur with Ben Franklin, who said, “Take care of the pennies, and the pounds will take care of themselves.” (We must have still been colonies when he coined this.)

      In chasing the pennies that fund schools in California, it’s turned out that buckets of them have been falling through the cracks — into redevelopment, debt service, and hiding bad fiscal decisions.

      Do you purport to represent the education community in thinking that burying $7 BILLION dollars — and growing — of unrelated debts in “education spending” improves the adequacy of school funding in California? That it strengthens education’s claim on voters to improve funding? Reassures citizens that their tax dollars are being well spent?

      Nonsense. Quite the opposite. Californians keep assuming that state taxes, the lottery, and property taxes are paying for education because that’s what they’re shown — by public officials — in state, county and school district documents.

      And the “power interests” rejoicing that “we’re” arguing? You’re the only one who’s arguing here. The mommies and daddies in this room aren’t fighting about who should pay Johnny’s allowance — we’re trying to sort out who’s “borrowing” it. Meager as it is.

      (Incidentally, Uncle Jerry is in charge of the top-up plan. Aunt Molly learned that.)

      • Paul 3 years ago3 years ago

        Jennifer, you didn't show any practical of evidence of local control over property tax, and since you were clinging to your assertion that it's not a state-controlled tax, I decided to move on. From the beginning, I've focused on increasing total education funding, while you've focused on switching the sources but leaving the total alone. I've never questioned the sincerity of your commitment to tinkering with property tax allocations. Bravo! In bringing up your party affiliation, I … Read More

        Jennifer, you didn’t show any practical of evidence of local control over property tax, and since you were clinging to your assertion that it’s not a state-controlled tax, I decided to move on.

        From the beginning, I’ve focused on increasing total education funding, while you’ve focused on switching the sources but leaving the total alone. I’ve never questioned the sincerity of your commitment to tinkering with property tax allocations. Bravo!

        In bringing up your party affiliation, I was clear to distinguish between you and the real “power interests”. I think that you’re playing into their hands, perhaps unwittingly, by using up political capital on an education funding measure that doesn’t bring a penny of net new money to education. Voters have heard that Proposition 30, LCFF, and the improving economy have solved the school funding problem. If your measure passes, it will be even harder for us to win an actual increase in educational funding.

        Your claim that I don’t have a stake because I’m not a parent is insulting. I taught in the public schools. Have you? I had to work during the years of deferrals. Did you? I suffered permanent economic harm from underemployment and undercompensation during those years, and harm to my health from excessive work demands. It was also heartbreaking to have to face students and parents and tell them honestly, “We no longer have the resources to do what you really need.”

        I’ll tell you how one of my districts responded to deferrals. The first time I taught Algebra I, I had five classes of twenty students. Two years later, in the same school, I had six classes of thirty-six. With deferrals on the horizon, the district voluntarily and permanently exited Morgan-Hart Ninth-Grade Academic Class Size Reduction. The district will reap a windfall in the coming years, as it is paid back for money it never spent. Nothing will be repaid to the students whose education suffered, nor to the teachers who kept the show going.

        • Jennifer Bestor 3 years ago3 years ago

          Paul, history suggests that political cover-ups fare worse than the crimes. Do you believe that power interests in California are blithely unaware aware that an enormous chunk of school funding is being diverted? That half of them aren't hoping to use it to raise taxes 'for education' that don't get to education--while the other half hasn't been holding it in their back pocket to scuttle just those efforts? And do you believe … Read More

          Paul, history suggests that political cover-ups fare worse than the crimes.

          Do you believe that power interests in California are blithely unaware aware that an enormous chunk of school funding is being diverted? That half of them aren’t hoping to use it to raise taxes ‘for education’ that don’t get to education–while the other half hasn’t been holding it in their back pocket to scuttle just those efforts?

          And do you believe that a silent, growing diversion of $7 billion in cash from schools is completely unrelated to the deferral of cash to schools?

          You yourself have illustrated the pain of deferrals on students, families and teachers. Deferrals are a function of lack of cash. Handing off $7 billon a year of cash doesn’t help school children or their teachers in California. Handing the cash that would have been distributed to the property-tax poorest districts hurts the least advantaged kids and the youngest teachers most.

          Meanwhile, where is this education funding measure of “yours” — that will solve the problems of California school funding? Decades in business taught me that the easiest way to kill a good idea was to claim it wasn’t big enough. Indeed, if a power interest wanted to kill our initiative, your approach would be exactly the one I’d recommend.

          It makes no sense to bury the state’s debts in education. It doesn’t help education one iota. Extracting those debts at a rare point of balance, when it can be done with minimum damage to all concerned, is an opportunity too valuable to waste.

    • navigio 3 years ago3 years ago

      thanks for the clarification paul. though it still tickles my logic center that we shouldnt give due funding unless the same programs are restored. i'll also admit im politically naive, but i dont think political capital is inherently scarce, rather becomes so as a function of behavior, integrity of efforts/arguments, etc. in other words, you shouldnt be using anything from your balance of political capital for just doing the right thing. to the extent that … Read More

      thanks for the clarification paul. though it still tickles my logic center that we shouldnt give due funding unless the same programs are restored.
      i’ll also admit im politically naive, but i dont think political capital is inherently scarce, rather becomes so as a function of behavior, integrity of efforts/arguments, etc. in other words, you shouldnt be using anything from your balance of political capital for just doing the right thing. to the extent that happens justifies the need for people to fight for the right thing regardless.

      • Paul 3 years ago3 years ago

        Hi, Navigio. I didn't intend to suggest that exactly the same programs be restored. Many no longer exist, including two of the ones I believed in as a teacher qualified in both K-8 and 6-12: K-3 Class Size Reduction to 20 (LCFF, at full implementation several years hence, gives an incentive for 24), and Morgan-Hart Ninth-Grade Academic Class Size Reduction (20 students in Algebra I or English 9). I don't have a good answer for judging program … Read More

        Hi, Navigio.

        I didn’t intend to suggest that exactly the same programs be restored. Many no longer exist, including two of the ones I believed in as a teacher qualified in both K-8 and 6-12: K-3 Class Size Reduction to 20 (LCFF, at full implementation several years hence, gives an incentive for 24), and Morgan-Hart Ninth-Grade Academic Class Size Reduction (20 students in Algebra I or English 9).

        I don’t have a good answer for judging program comparability. Perhaps it would just have to be a finding that overall operating spending, or spending in certain budget categories, had been restored to prior levels.

        The salient observation in what I wrote about repayment is that we should go above and beyond in repaying districts that borrowed externally (as matters stand, they’ll recover principal, but not necessarily interest); help districts that showed discipline in building up healthy reserves and then spent them as intended, during a crisis; and let the remaining districts prove that money is flowing back to the classroom before we help them.

        Of course, it’s all moot, as deferrals are being repaid regardless of external borrowing, internal borrowing, or maintenance of effort. It’s wishful thinking on my part that we’d reward the districts that tried hardest to preserve services. Maybe I’m too Keynesian!

  4. Jennifer Bestor 3 years ago3 years ago

    Paul, and now back to property taxes! A point of definition, when I say "state" in this context, I mean "state government." Which I (sadly, given this is a republic) do differentiate from "state citizenry." If you consider the two the same, then I can understand our differences. However, intentionally or unintentionally, Proposition 13 did NOT shift property tax to the state government. Of the four things you mention, two definitely did NOT go … Read More

    Paul, and now back to property taxes!

    A point of definition, when I say “state” in this context, I mean “state government.” Which I (sadly, given this is a republic) do differentiate from “state citizenry.” If you consider the two the same, then I can understand our differences.

    However, intentionally or unintentionally, Proposition 13 did NOT shift property tax to the state government. Of the four things you mention, two definitely did NOT go to the state government — control of the property tax rate and maximum annual increase. (XIII A (3) “no new ad valorem taxes on real property” and (2)b “not to exceed two percent”) Only interpretation of the reassessment triggers did (and that was severely limited by (2)a). Allocations we’ve already discussed. From all this, I believe that no one had clear control over property tax after Proposition 13, except the voters. In 2004, they made it clear who owned half of it (local governments). Now it’s time to make it clear who owns the rest (schools).

    When you say that we’re playing a “zero sum game,” that’s what we’re trying to catch the moment to do. We’re trying to catch a moment when everything’s in balance, we can return property taxes to schools, which returns general fund monies to the Legislature, for it to spend on its own debts.

    Going forward, we would hope that this means that future fiscal crises don’t involve schools juggling not just their fair share, but the excess costs of a bizarre, growing mechanism for funding the state’s debts.

    And, no, regarding redevelopment. What the Governor/Legislature did had property tax consequences, but they didn’t do it TO property tax:

    Redevelopment law originally allowed cities/counties to set up redevelopment agencies in ‘blighted areas,’ then negotiate tax increment to fund ‘improvements.’ When the Gov/Leg shut down redevelopment agencies, they addressed the accumulated assets/liabilities/obligations of those agencies within the context of the negotiations that had occurred years/decades earlier. Any freed-up property tax increment, however, has flowed off to the original taxing entities in the original allocations.

    The fascinating way in which a return to the normal distribution of freed-up tax increment interacts with the remaining statutory pass-thru obligations to continue to give certain counties and special districts MORE than their fair share (and schools less) is food for hours more discussion. However, the only state involvement I’ve heard of was a bill (which I didn’t follow) to decide who got the excess freed-up ERAF tax increment in the four excess-ERAF counties.

    And now we have reached a point where most people’s heads are spinning. Aren’t we discussing property tax going to schools? Doesn’t it just go to schools, like in other states? Why are we having to discuss:
    – urban renewal/redevelopment?
    – vehicle license fee reduction?
    – deficit financing bonds?
    Exactly! Any other state would collect property tax for schools and then top up poorer districts with state funds. California, by pretending that we can get something for nothing (VLF reduction! blight management! deficit spending!) out of bedrock school funding, ends up with … surprise … miserable school funding generally, and the least stable funding in the poorest districts*.

    (* And, yup, poorer school districts have had to swallow the lion’s share of property-tax redirection to redevelopment, too. There’s not a lot of blight in Beverly Hills, Woodside, or Carmel — the opportunity to rehab blighted sandtraps notwithstanding.)

    To us, deciding to fund the state’s debts out of school funding is like deciding to fund the national debt through social security. Imagine if President Bush had announced, in 2004, that he was going to take $800 out of every Social Security recipient’s savings account every year to fund tax cuts and the war on terror. Not to fret, he’d increase their Social Security payments by the same $800! Then imagine that the government began recalculating the cost-of-living increases and entitlement criteria (kinda like suspending Prop 98?) Then, in 2008, the government announced that February’s Social Security checks would arrive in July. And then, in 2009, that Feburary’s would arrive in July AND May’s in August … Accounting mechanism, or riots in the streets?

    Replies

    • navigio 3 years ago3 years ago

      walkers, canes, pitchforks and torches, to the streets!

  5. Jennifer Bestor 3 years ago3 years ago

    [We seem to have run out of reply levels on the earlier thread, so I'm starting anew] Paul and navigio, You now know me well enough to guess that, yes, I have done primary source work on how districts dealt with deferrals. It is, however, a long slog since you have to track down a district's budget packets and the budgets themselves. Since these spanned multiple meetings by the time we get to … Read More

    [We seem to have run out of reply levels on the earlier thread, so I’m starting anew]

    Paul and navigio,

    You now know me well enough to guess that, yes, I have done primary source work on how districts dealt with deferrals. It is, however, a long slog since you have to track down a district’s budget packets and the budgets themselves. Since these spanned multiple meetings by the time we get to spring 2011, it becomes a 12+ hour project to analyze just one district. So I’ve done a number of them and also spoken about the effects of deferrals with county superintendents, along with school board members and local school superintendents, which have rounded out the picture a bit. (Note that another complicating factor was funding cuts on top of deferrals, which makes sorting the whole mess out even more challenging.)

    I’ll summarize my own research in a moment, but there is also a state-wide LAO study and whitepaper from January 2011 that is illustrative. (“To Defer or Not Defer?” — get the full report, not the synopsis, as the exhibits are telling.)

    Note that deferrals had not yet reached their peak when the LAO’s study was done, and that the study did not attempt to characterize districts, so the results are averages. However, they show that districts borrowed both externally and internally, and that they cut programs, staff, and instructional days. Which led to larger classes and less counseling, library access, sports and arts. As you observe, where they borrowed, they’ll simply repay as deferrals are paid down — and where they cut, they will have ‘additional’ revenues to spend next year.

    OK, now down into my anecdotal observations (and I invite you to do the same for districts around you — though grimly you will find it easier in the wealthier districts with robust online board agendas/minutes/handouts, and much harder in poorer districts where you may have to visit the district office – also helpful in these cases are the Fitch ratings of their TRANS borrowings).

    Like the LAO, I found each district used a blend of borrowing and spending cuts. The actual blend depended on:
    – internal borrowing options available to the district
    – external borrowing options (often coordinated by the county office of education in the case of smaller districts)
    – external resources available to the district
    – the school board’s gut call on the future (more deferrals? improving economy? Prop 30/38 passage?) given its current sense of flexibility

    Not surprisingly, wealthier districts (or middle-wealth districts in wealthier counties) tended to borrow more (especially internally) while poorer districts tended to cut more.

    The first line of recourse was internal borrowing — from reserves, from local school bond funds, from other internal funds, etc. Wealthier districts tended to have healthier reserves along with recent bond measure funds. Districts went through reserves until they approached the 3% minimum (which was waived at one point for payments for salaries). The cost for most of these borrowings was opportunity cost — i.e., the funds no longer earned interest so the cost lay in reduced income rather than increased expense, or projects/maintenance were deferred until a later date. (Fortunately, of course, this all happened in a period of low interest rates. Had interest rates spiked upwards, it would have been grimmer.)

    The second line of recourse was local borrowing — from the COE, the county controller, etc. I have no idea how creative this got as it was generally described to me sotto voce, but my sense is that it was done as cheaply as possible.

    The third line of recourse was external borrowing through TRANS. Often, the COE took the lead in this, bundling multiple districts’ needs together, given the cost and expertise needed. We see about $50 million a year of interest expense in Ed-Data, plus another $96 million in principal (Func Code 7439, which is probably split between what you and I would call principal and what would be categorized as discount when bonds are sold below face value, which we’d probably consider interest also).

    A district’s willingness to run the gamut of these borrowing options seems to have depended on the school board’s risk appetite, COE support, and community support. The risk of borrowing, only to be faced with increased deferrals going forward, was daunting for districts without external resources (incl. parcel taxes, ed foundations, other federal/local funding) or support. And the borrowing got bigger (dollar-wise) the more a district was dependent upon state aid. Thus, Piedmont, San Carlos, or Santa Monica-Malibu might easily dismiss deferrals as irritations, while Sac City, Alisal, and South Whittier might describe them as nightmares.

    So where I looked poorer districts disproportionally tended to cut instructional days and staff rather than incur additional interest costs or risk being caught overextended and having to make devastating cuts in the future. Richer districts made smaller cuts and borrowed.

    Since the way the VLF Swap works is to take the most out of revenue-limit funding for the poorest schools, which was exactly the funding that was subject to deferrals, we effectively shifted the costs and consequences of state funding volatility onto those who could least protest and manage them. Which means that, with deferral reductions, wealthier districts will simply spend more time on education rather than funding issues, while poorer districts will be faced with trying to figure out which starved area to try to rebuild.

    Again though, as I lumber around through school board minutes, bond ratings, and newspaper articles, I keep wondering why — given a moment of balance in which we can take the state’s debts out of schools — we are investing pixels in arguing about ‘just exactly how bad it was for schools.’ Why do we need to convince ourselves that, somehow, borrowing that banks would charge a fortune for is “free” when school kids are the lenders?

    Replies

    • navigio 3 years ago3 years ago

      thanks for the explanation jennifer. that would be a good article topic unto itself. re your last question: we did this intentionally which means either we thought districts could handle it or we just didnt care what the impact was. as long as people are able to keep the impact of deferrals abstract, we will continue to implement them (or steal outright). this is why transparency is so important in general, imho.

  6. Don 3 years ago3 years ago

    "Whether a given dollar paid or promised to a school district originates in property tax, or in state sales tax, or in state income tax, the sum total of those dollars will be exactly the same. We are playing a zero-sum game. “Unsteal” property taxes, “resteal” from the general fund" Right, until the state doesn't fill the bucket after which the districts with the worst property tax positions become debtors or downsizers while the party … Read More

    “Whether a given dollar paid or promised to a school district originates in property tax, or in state sales tax, or in state income tax, the sum total of those dollars will be exactly the same. We are playing a zero-sum game. “Unsteal” property taxes, “resteal” from the general fund”

    Right, until the state doesn’t fill the bucket after which the districts with the worst property tax positions become debtors or downsizers while the party continues in flush districts. This circumstance is functionally not unlike the pre-Serrano period, but in the form of disparate deferrals and losses to districts, despite Prop 98. It unwinds the constitutional provisions of Serrano which were never a perfect solution, though less so than they could be without dipping into the ed share.

  7. Don 3 years ago3 years ago

    The exception is in the triple flip which allows the State to get its hands on education money that it couldn’t otherwise do to the constitutional restrictions on the state use of local property taxes.

    Replies

    • EA 3 years ago3 years ago

      The triple flip was passed by the voters and will end next year. The VLF Swap will never end, and was not passed by the voters. It takes an increasing amount of schools’ share of property taxes, not reported nor accounted for, and that hurts education and California. It ties the legislature’s hands far more than this solution – forever. What makes it worse? The VLF Swap is more complicated and 5x what the Triple Flip was. Criminal

    • Hope Salzer 3 years ago3 years ago

      Yes, Don, thank goodness the so-called ‘Triple Flip’ is scheduled to end in a few years (if not sooner).

  8. Teachermom 3 years ago3 years ago

    Thank you for bringing this lack of funding to the attention of California parents.As a teacher in the Coachella Valley, I think many people would be surprised that our core classes have 47-48 students crammed in. There Are some P.E. Teachers responsible for 70 students. While my own opinion on this was not allowed to be posted here, I will leave it up to fellow parents to decide if they feel they are comfortable with … Read More

    Thank you for bringing this lack of funding to the attention of California parents.As a teacher in the Coachella Valley, I think many people would be surprised that our core classes have 47-48 students crammed in. There Are some P.E. Teachers responsible for 70 students. While my own opinion on this was not allowed to be posted here, I will leave it up to fellow parents to decide if they feel they are comfortable with their child trying to learn in such a crowded environment. As a teacher and a mother, it is very disappointing that the funds of our most vulnerable citizens have been diverted for so long. I think by you making more parents aware, the need for change will be more of a focus in the future.

  9. Cinnamon O'Neill Paula 3 years ago3 years ago

    Thank You Jennifer for explaining all of this so well. The whole situation makes me sick. All of our children need an education, yet our schools are constantly getting pushed to the side. We need to stand up and put an end to this now. http://www.YesForEducation.org

  10. Paul 3 years ago3 years ago

    Without control over taxes -- how much, from whom, and how fast? -- there is no power. Except for local tax measures, where proposed to and approved by voters, and fees-for-service, where allowed, cities, counties, school and special districts simply decide how to spend revenue given to them by the state. Amount, source and timing are now decided entirely at the state level. There was wide political support for reducing the vehicle license fee, limiting property taxes, … Read More

    Without control over taxes — how much, from whom, and how fast? — there is no power.

    Except for local tax measures, where proposed to and approved by voters, and fees-for-service, where allowed, cities, counties, school and special districts simply decide how to spend revenue given to them by the state. Amount, source and timing are now decided entirely at the state level.

    There was wide political support for reducing the vehicle license fee, limiting property taxes, etc. Voters have a sentimental attachment to schools, but this doesn’t translate into support for permanently restoring revenues that could help pay for education. Not a dime was “stolen”; people voted not to pay.

    Politicians and government executives are complicit. Instead of saying, “my school district cannot make payroll and must declare bankruptcy”, trustees and the superintendent put on a happy face. K-3 class sizes jump from 20 back to 32.5. High school classes jump from 20-30 to 40. Librarians are replaced with aides. All facilities maintenance stops. Volunteers are brought in and donations, celebrated. Voters conclude that there are no consequences for reducing taxes. Politicians and government executives tell them what they want to hear, because to do otherwise would mean leaving office or resigning, i.e., giving up their own pieces of the (declining) pie.

    Taking back “stolen” taxes is a naiive slogan. The state’s total investment in schools will stay the same, whether the money comes from property taxes or state income tax.

    Placing more limits on how the state can allocate taxes is destructive. In the same way that we can’t blame local leaders for poor results — they haven’t controlled the financial inputs in over 30 years — we can’t blame state leaders, either. Their answer to complaints about deficient public services? “Well, *this* proposition limited property taxes, *that* one forbade us from raising income tax rates without asking you, you say ‘no’ when we do ask, and *this* stack of propositions over here tells us, by formula, how to allocate what little money is left. You see how it is now? So sorry!”

    Replies

    • Jennifer Bestor 3 years ago3 years ago

      Paul, it was the State Legislature that limited its own ability to allocate property taxes allotted to cities, counties, and every flavor of special district (flood, lighting, recreation). Only schools were left off the list. Proposition 1A was put on the ballot by a "historic, bipartisan" vote of the Legislature, led by Gov. Schwarzenegger. It was not an initiative. Then the Legislature moved swiftly to redirect the unprotected school taxes to service its … Read More

      Paul, it was the State Legislature that limited its own ability to allocate property taxes allotted to cities, counties, and every flavor of special district (flood, lighting, recreation). Only schools were left off the list.

      Proposition 1A was put on the ballot by a “historic, bipartisan” vote of the Legislature, led by Gov. Schwarzenegger. It was not an initiative.

      Then the Legislature moved swiftly to redirect the unprotected school taxes to service its own obligations.

      While it’s hard to disagree with your skeptical belief that the state will manipulate Prop 98 to ensure that its total investment in schools will stay the same — keeping California in the bottom ten nationally — doing nothing ensures that it will.

      • Paul 3 years ago3 years ago

        Hello, Jennifer. I applaud citizen efforts and appreciate your article explaining the issues, but I can't agree with any new restrictions on how the state allocates revenue. Whether legislated, proposed by legislators, or proposed by citizens, all of these restrictions hamstring future leaders and future consumers of government services. If we really want better schools, we need more revenue (among other things, of course). California voters have proven unwilling to approve permanent, statewide revenue restorations/increases that could be … Read More

        Hello, Jennifer.

        I applaud citizen efforts and appreciate your article explaining the issues, but I can’t agree with any new restrictions on how the state allocates revenue.

        Whether legislated, proposed by legislators, or proposed by citizens, all of these restrictions hamstring future leaders and future consumers of government services.

        If we really want better schools, we need more revenue (among other things, of course). California voters have proven unwilling to approve permanent, statewide revenue restorations/increases that could be used for education. End of story.

        I don’t see Proposition 98 as any part of a solution, or as a source of hope. It was another artificial restriction on the state’s authority to allocate tax revenue. It didn’t prevent drastic cuts between 2008 to 2011, so it failed even in its goal of tinkering with revenue allocation for the benefit of public education. As it wasn’t a tax measure, it of course didn’t produce a dime of new revenue, either.

        As long as we keep playing these games, shuffling percentages of money from one pot to another, instead of admitting that there isn’t enough money overall, we have no hope of stabilizing, restoring, or eventually boosting, school funding. There’s no evidence that your proposed restriction on revenue allocation is any better or worse than any of the other restrictions that prevent state leaders from deciding how to to spend money and that, in so doing, shield the leaders from accountability.

        I think that the 2008-2011 school funding crisis and its aftermath are a missed opportunity. Had some districts gone bankrupt (I wonder if it’s even possible as an alternative to COE support/state takeover, steps intended to paper over funding shortfalls); had one or two high-profile districts shut down from one day to the next; had local school trustees and superintendents anywhere in the state resigned instead of endorsing service cuts; and had school districts really shortened the school year (by ending it early instead of spreading out a few Friday closures); the electorate might actually have addressed permanent revenue needs. As it was, no one noticed, and we got a few temporary taxes that will expire just as the next recession starts.

        • Jennifer Bestor 3 years ago3 years ago

          Paul, I appreciate your encouragement of citizen engagement. But, honestly, you want to stop the music when the kids don't have a chair? Hmm. In comparison, I want to turn the music back to when kids had half a chair. Then, at least, counties, school districts and the state accurately reported where money was going. Now school kids have a negative half chair: neither reliable funding nor accurate reporting of the … Read More

          Paul, I appreciate your encouragement of citizen engagement.

          But, honestly, you want to stop the music when the kids don’t have a chair? Hmm. In comparison, I want to turn the music back to when kids had half a chair. Then, at least, counties, school districts and the state accurately reported where money was going.

          Now school kids have a negative half chair: neither reliable funding nor accurate reporting of the fact that 40% of state and local taxes are NOT going to schools.

          Having said that, I do agree with you that the entire funding system needs a good reworking. For that reason, we were very careful to craft the initiative so that our lock-down on school-allocated property taxes can be removed with exactly ten more letters when the lock-down on everyone-else-allocated property taxes is. These letters are: ” and 25.6″ plus an “s” on the end of Section.

        • Don 3 years ago3 years ago

          Paul, we can argue over the limits of government and it's a good conversation, but it seems to me that the pertinent question is why restrictions on Sacramento's use of local property taxes don't apply all the way around or why schools should be the one exception (and a very large and lucrative one at that)? This is a nanny state fighting over whose public services are more important. In other words, which … Read More

          Paul, we can argue over the limits of government and it’s a good conversation, but it seems to me that the pertinent question is why restrictions on Sacramento’s use of local property taxes don’t apply all the way around or why schools should be the one exception (and a very large and lucrative one at that)? This is a nanny state fighting over whose public services are more important. In other words, which interest group has the most clout. Not education. That’s why we need this initiative – to level the playing field.

          • Paul 3 years ago3 years ago

            Hi, Don. There's no exception here involving schools. The property tax rate, the rules for property assessment and reassessment, the maximum annual increase in assessed value, and the allocation of property tax revenues are all controlled entirely at the state level. Property tax has become a state tax. It is like the other major taxes controlled by the state -- personal income, corporate income, and state sales tax. In the past decade, we've seen the state … Read More

            Hi, Don.

            There’s no exception here involving schools. The property tax rate, the rules for property assessment and reassessment, the maximum annual increase in assessed value, and the allocation of property tax revenues are all controlled entirely at the state level. Property tax has become a state tax. It is like the other major taxes controlled by the state — personal income, corporate income, and state sales tax. In the past decade, we’ve seen the state reallocate transportation funds from the sales tax and redevelopment agency funds from the property tax, to name just a few examples.

            • EA 3 years ago3 years ago

              Paul, There is a HUGE exception involving schools. The property tax rate that was allocated to schools in1978 is NOT getting there (though it is reported as getting there)- because education is the only property taxes the state can use. All other allocations were protected in Prop 1A in 2004. To Don's point, children do not have a lobby, or a voice - the other special interests and wealthy school districts do, and protected … Read More

              Paul, There is a HUGE exception involving schools. The property tax rate that was allocated to schools in1978 is NOT getting there (though it is reported as getting there)- because education is the only property taxes the state can use. All other allocations were protected in Prop 1A in 2004. To Don’s point, children do not have a lobby, or a voice – the other special interests and wealthy school districts do, and protected their interests. When education joins ALL local property taxes and all are in a similar situation, we will be able to discuss revenue. Right now? No. There is NO transparency and NO accountability.It is a non starter.

            • Jennifer Bestor 3 years ago3 years ago

              Hi, Paul. Well, no. Property tax has not become a state tax, though that certainly was the loud cry of cities when the ERAF shift occurred in 1992. First, property tax cannot leave the county in which it was levied. Unless a local agency is willing to launder it (as cities/counties did in the Triple Flip -- accepting schools' property tax in exchange for their sales tax, which was handed to the state to service … Read More

              Hi, Paul.

              Well, no. Property tax has not become a state tax, though that certainly was the loud cry of cities when the ERAF shift occurred in 1992.

              First, property tax cannot leave the county in which it was levied. Unless a local agency is willing to launder it (as cities/counties did in the Triple Flip — accepting schools’ property tax in exchange for their sales tax, which was handed to the state to service the deficit bonds), property tax cannot be directed out of the county, whatever the state wishes.

              Second, state “control” of property tax allocation was merely one of Prop 13’s unintended consequences. Prop 13 offhandedly states, “The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.” The Legislature and the courts then interpreted “according to law” as “according to the Legislature,” which the Legislature then proceeded to handle in as ham-fisted a way as possible:
              – (A) with the AB 8 Shift in 1979, which instructed counties and cities to back-fill themselves from their schools’ property taxes for (roughly) 90% of their Prop 13 losses. This meant that spendthrift counties like San Francisco and Los Angeles dug deep into their school districts’ local funding, while thrifty cities and counties left theirs alone — a fact that accounts for many of the basic-aid districts in the state.
              – (B) with the ERAF Shifts in 1992-94, which hacked an equivalent chunk back out of cities/counties, for the use of revenue-limited school districts. (John Decker, one of the architects of ERAF tells me that they were not thinking of it as a Serrano-compliant measure, which may be why no one realized that the Swap/Flip digging into it first would destabilize funds flows for poorer districts. Though, in exculpation, no one had thought of multi-billion, multi-year deferrals then, either.)
              – (C) with the VLF Swap/Triple Flip, which have destabilized school finance for the past decade, since you can’t bury an unaffordable $5 billion debt somewhere and not have it pollute the environs.
              – And (D) by handing control of the majority of property taxes back to cities, counties, and special districts in 2004 (Prop 1A), while hanging on to the last bit … which belongs to schools.
              Even the LAO, which published in interesting paper in 2000 on the “seriously flawed” allocation methodology then in existence (before the messes of 2004 were added), seems to have given up pretending anyone controls it now.

              And, third, the state has never allocated redevelopment taxes from the property tax. Redevelopment has been local since the 1950’s. It caught fire when Prop 13 rolled back assessed valuations, burying a ton of “tax increment” in properties. If you go to your local redevelopment agency’s successor agency and ask to look at the original redevelopment agreements, you’ll find that the underlying local agencies (city, county, schools, special districts) had to agree to redevelopment declarations covering parts of their districts. They then negotiated “pass thrus” that recaptured some portion of the tax increment. Schools were amazingly naive about this, convinced that the state would cheerfully and bottomlessly top them up when they handed all their increment to these agencies. Oops. Worked well at first, but quickly consumed 10% of the school property tax that remained after the AB8 Shift (growing to 12% of all state-wide property tax by 2010). The Redevelopment drain out of schools led in part to the ERAF Shift in 1992, which included new rules about the amount of pass-thru that had to occur. But, by 2012, even that was too little and led to the end of Redevelopment. But the state has never allocated anything to Redevelopment out of property tax — only taken from it.

              After all this, I owe you an apology. Having not written the lead about “stolen property taxes,” I’m afraid I ignored it. I hope you see that in the actual commentary, I only talked about forced lending. I continue to hope that deferrals will not turn into stealing. I believe they should be repaid next year … Providence willing and the creek rises a bit. As long as crushing agricultural losses and energy costs don’t dent the income outlook, or the Legislature doesn’t decide that paying off debts to schools is a low priority, schools should see their full mite next year … after the seven years of locusts.

            • Don 3 years ago3 years ago

              At this juncture I'd pretty much believe anything Jennifer said. I'm a Jennifer Bestor groupie. Paul, in regard to your comment - "I can’t agree with any new restrictions on how the state allocates revenue"- I don't think the initiative has so much to do with hamstringing how the State allocates revenues as much as how it appropriates them. But in either regard, I'm all for limiting the appropriation or allocation of education dollars … Read More

              At this juncture I’d pretty much believe anything Jennifer said. I’m a Jennifer Bestor groupie.

              Paul, in regard to your comment – “I can’t agree with any new restrictions on how the state allocates revenue”- I don’t think the initiative has so much to do with hamstringing how the State allocates revenues as much as how it appropriates them. But in either regard, I’m all for limiting the appropriation or allocation of education dollars or any other state revenues through the use of accounting tricks.

              The overall paltry funding for education may be the real culprit, but until that’s remedied we should try to prevent such shenanigans and step forward to protect the interests of California’s public school children. My hat’s off to those who have made the effort to do the right thing by kids.

            • Paul 3 years ago3 years ago

              Hello again, Jennifer. Whether intentionally or unintentionally, Proposition 13 had the effect of shifting control of the property tax rate, maximum annual increase, (re)assessment triggers, and allocations to the state. Clearly, it's the effect that matters. Are you arguing that, because it might have been unintentional, it didn't happen, and that local governments still have control over this tax? The constitutional provision forbidding transfer of property taxes outside their counties of origin stopped being meaningful the moment … Read More

              Hello again, Jennifer.

              Whether intentionally or unintentionally, Proposition 13 had the effect of shifting control of the property tax rate, maximum annual increase, (re)assessment triggers, and allocations to the state. Clearly, it’s the effect that matters. Are you arguing that, because it might have been unintentional, it didn’t happen, and that local governments still have control over this tax?

              The constitutional provision forbidding transfer of property taxes outside their counties of origin stopped being meaningful the moment that the state centralized education funding and began transferring state revenue to local governments to backfill Proposition 13 revenue losses. Whether a given dollar paid or promised to a school district originates in property tax, or in state sales tax, or in state income tax, the sum total of those dollars will be exactly the same. We are playing a zero-sum game. “Unsteal” property taxes, “resteal” from the general
              fund.

              Regarding redevelopment money, I was simply referring to the Governor’s decision to close the redevelopment agencies, allocate part of their former property tax revenue to pay their bonds/obligations, and allocate the rest to other local governments. I’d call that a reallocation of property tax, decided at the state level. Wouldn’t you?

              A final thought about school districts affected by deferrals… One thing I admire about your activism is that you study basic data, often reaching conclusions that are uncomfortable for officials. You’ve done this with property rolls, but have you studied actual cash flows in school districts subject to deferrals? Which districts borrowed money? From their counties, or on the private market? How much? At what rates of interest? In what budget years? Repaid/repayable when?

              Although I’m the first to say that the deferrals must be repaid — and that they should be repaid with interest — I suspect that most of the affected districts chose to make permanent cuts after the first year of deferrals, rather than to borrow more funds. I suspect that, in most cases, we will not be helping districts pay off loans. Unless districts can prove maintenance of effort through several years’ worth of deferrals repayments of deferrals will be available for current spending, rather than to pay off previously-incurred debt.

            • Paul 3 years ago3 years ago

              For clarity, my last sentence needs a comma:

              “Unless districts can prove maintenance of effort through several years’ worth of deferrals ***,*** repayments of deferrals will be available for current spending, rather than to pay off previously-incurred debt.”

            • navigio 3 years ago3 years ago

              paul, would you support reversing prop 1A, since the distinction apparently doesnt matter? i have to admit, your last paragraph made me choke a little. it sounds like you're arguing for (or at least proposing that it may end up becoming reality) that deferrals not be paid back because they'd only look like 'extra income' in those cases where districts made cuts. regardless, your questions at the end of the 2nd to last paragraph are exactly … Read More

              paul, would you support reversing prop 1A, since the distinction apparently doesnt matter?

              i have to admit, your last paragraph made me choke a little. it sounds like you’re arguing for (or at least proposing that it may end up becoming reality) that deferrals not be paid back because they’d only look like ‘extra income’ in those cases where districts made cuts.

              regardless, your questions at the end of the 2nd to last paragraph are exactly the ones i’ve had. i think jennifer attempted to characterize some of that in the previous piece on this initiative. even as deferrals have been happening all these years, one of my own questions in the midst of my cries of highway robbery was how exactly are districts dealing with this. for the most part, no one really talks about this though (there are some exceptions). and that silence is just another facet of non-transparency, imho.

              and regardless of how local one sees the pie pieces, the fact that counties and cities can simply lie about where money is going is just unacceptable. oh, unless it happens to public school kids that is. they deserve it of course….

            • Paul 3 years ago3 years ago

              Jennifer - My use of "state level" throughout should make it clear that I realize that (state) voters made some property tax decisions (literal aspects of Prop. 13: tax rate, growth rate, reassessment trigger) whereas state legislators made others (mechanics) -- and that the distinction is irrelevant here, because the effect was to end local control. I know the history of redevelopment all too well. Here again, my point is that the decision to end it, … Read More

              Jennifer – My use of “state level” throughout should make it clear that I realize that (state) voters made some property tax decisions (literal aspects of Prop. 13: tax rate, growth rate, reassessment trigger) whereas state legislators made others (mechanics) — and that the distinction is irrelevant here, because the effect was to end local control.

              I know the history of redevelopment all too well. Here again, my point is that the decision to end it, and the decision about how the property taxes formerly used for it would be allocated henceforth, were made at the state level, not locally.

              You are asking the education community to use scarce political capital to restore a tax allocation scheme that we’ve all acknowledged was arbitrary to begin with. I can’t tell whether you agree that overall education funding — which will remain the same — is adequate. As we have seen with Props 42, 1A, etc, artificial restrictions on tax allocation give rise to intergovernmental squabbles, but fail in achieving stated objectives. The UNstated objective might be to make the house so unwieldy that it must be torn down. The platform of the Republican Party, to which you belong(ed?), includes reducing public education funding and diverting it to charter and private operators.

              Power interests are rejoicing that we’re arguing whether mommy or daddy should pay Johnny’s allowance this week instead of pointing out that his allowance is too low.

              Navigio – I support repayment of every penny deferred.

              Districts that borrowed externally should have priority; principal should be repaid and interest, reimbursed.

              Districts that borrowed internally should be next, to the extent that they A. built up reserves, as a percentage of revenue, to the statewide average level, before the crisis (prudent fiscal management) and B. drew them down to the minimum level during.

              Remaining funds should be divided among districts that did not maintain effort, payable only as programs are restored.

  11. Don 3 years ago3 years ago

    El, when money is scarce there’s more risk to politicians by voting down funding for education than by playing the triple flip accounting game that allows them to meet their budget while deferring funds instead.

    Replies

    • el 3 years ago3 years ago

      There is? Then what was that 22% deficit factor doing in the budget all those years?

      As I mentioned in an earlier comment on this, I agree that the deferrals got way out of hand. The accounting trick of moving payments from June to July only works once. If deferrals and uncertainty move say to the county budget instead, that’s not really a great solution in my eyes.

      • Katherine Welch 3 years ago3 years ago

        El - this is NOT about moving deferrals to another budget. This is about not having schoolchildren pay the debts of the state - and yet report those funds are going to education (because it is politically attractive). That practice only feeds the common notion in Sacramento that 'all the money goes to education' while we sit at or near the bottom of the funding pile in education, and at or near the top in … Read More

        El – this is NOT about moving deferrals to another budget. This is about not having schoolchildren pay the debts of the state – and yet report those funds are going to education (because it is politically attractive). That practice only feeds the common notion in Sacramento that ‘all the money goes to education’ while we sit at or near the bottom of the funding pile in education, and at or near the top in prisons (no one can pretend those statistics are not related). This will ONLY give education the meager local allocation of property taxes they were allocated in 1978 (those taxes have been grabbed from them over the years by powerful special interests – and after 10 years of collecting it, they have convinced themselves it is their own!). This is about cities, schools, counties and special districts working together, NOT against each other. Everyone wants to have a loser – their is plenty of money in the general fund (because the amount the state needs to backfill schools is reduced by $7 billion). The initiative keeps the VLF reduction backfill as it was originally designed, and now it will be reported by the state so we know where our money is going. The extra, unaccounted for $2.5 billion excess the state was paying is sitting in the general fund. We are not asking that it go to schools, because we live in cities and counties and want to make sure everyone is made whole. The next time the economy goes into a downturn, and we know it will, we will ALL share equally in whatever burden that causes, versus forcing schools to bear ALL the burden, as they did the last ten years. Those children cannot make up those years, ever. They cannot vote, and have no lobbyist looking out for them in Sacramento. If we are not their voice, we will all pay for it. Not just in moral costs, but in rising social welfare and public safety costs. This seems to us a very short term way to manage the 7th largest economy in the world. This is NOT new revenue to schools – it is about cash flow. It is letting the poorest schools have their share of money that is on the dining room table, vs having to go downtown to the bank for every dollar.

  12. el 3 years ago3 years ago

    I'm sorry... I still don't understand it. The way I see the state responding is -- okay... they won't defer the property tax portion, but will instead defer or just flat out reduce the state aid. Either way... comes out about the same. Curious that they cannot do this to Basic Aid districts, which I guess means that I still haven't grokked this bit of how the cash flows. Very ugly that districts in the same … Read More

    I’m sorry… I still don’t understand it. The way I see the state responding is — okay… they won’t defer the property tax portion, but will instead defer or just flat out reduce the state aid. Either way… comes out about the same.

    Curious that they cannot do this to Basic Aid districts, which I guess means that I still haven’t grokked this bit of how the cash flows. Very ugly that districts in the same county as a Basic Aid district are disproportionately affected.

    I come at this from the point of view of a district where property taxes are only about 1/3 of the total district income. I don’t know what typical percentages are for other districts.

    This seems like kind of an arcane fix that might not address the real problem, which is that deferring money years at a time, regardless of which bucket it’s in, is not OK, not for any program we actually want.

    Replies

    • Jennifer Bestor 3 years ago3 years ago

      el, thanks for engaging around this. You pick up on a number of important threads. Most deserve 'long answers' (or invite them, ;-)), but let me address one first, "won't the state just defer or reduce some 'other' part of State Aid?" Yes, it might. However, by handing off a reliable, stable, growing income stream in 2004, the state is now giving away over $2,000,000,000 a year more than that obligation. … Read More

      el, thanks for engaging around this. You pick up on a number of important threads. Most deserve ‘long answers’ (or invite them, ;-)), but let me address one first, “won’t the state just defer or reduce some ‘other’ part of State Aid?”

      Yes, it might. However, by handing off a reliable, stable, growing income stream in 2004, the state is now giving away over $2,000,000,000 a year more than that obligation. Next year the Department of Finance says it will be $2,500,000,000. And it will continue to grow with the improving real-estate market. And this has been handed directly and invisibly out of school revenues.

      So the mechanism has created an additional, growing funding shortfall all by itself — over and above the VLF reduction that couldn’t be afforded in the first place. Talk about doubling down on a bad bet.

      Can the state, now that it’s discovered that Proposition 98 is toothless, continue to defer school revenues to balance its books? Sure. Does the education community need to learn the lesson that cities and counties learned in 1990 (and education could have learned when AB 8 stripped it of a quarter of its property tax in 1979), that local, reliable, stable, growing income streams are vital and worth defending in the face of the state’s feckless fiscal management? YES.

      Remember that California actually ‘improved’ its national standing after 2004 in Corrections, Police & Fire, and Highway spending (also Debt Service). So it’s not that there was no money, just that as long as education seems willing to wait for its share — interest free and repayment negotiable — it will get to wait.

      For those who like comparisons, in 2009 the state borrowed $2B of property tax from cities and counties. It paid 2% interest and set up a securitization program so “participating local governments will be shielded from the negative consequences of the State borrowing local property taxes,” and the money was all repaid last June (2013). In comparison, in 2009-10 the state increased its deferrals to schools from $4 to $5.5 billion, paid no interest, set up no securitization program, and will still owe schools over $5 billion this June 2014.

      I can’t blame the state for taking advantage. But I can wonder why education has to be so “nice” — and whether that invites victimization.

  13. Sherry Schnell 3 years ago3 years ago

    This is so important to our kids. Thanks very much for reporting on it.

  14. Jeff Camp 3 years ago3 years ago

    I appreciate that Educate Our State has avoided “dumbing down” this issue. If I understand your figures correctly, the average size of this debt is about $1,200 per student, but there’s no clear public ledger to see it. Is this an accurate way of thinking about it?

    Replies

    • Jennifer Bestor 3 years ago3 years ago

      Jeff, Yes ... and ... First, the yes. Next year, $8.4 billion will be transferred out of school property taxes to satisfy the state's debts. There are 6 million K-12 students, plus another million+ community college FTEs, which would work out to a $1,200 loan from each student. Hopefully, all deferrals will be paid back and Prop 98 will not be suspended (all dependent, of course, on sustained economic growth and … Read More

      Jeff, Yes … and …

      First, the yes. Next year, $8.4 billion will be transferred out of school property taxes to satisfy the state’s debts. There are 6 million K-12 students, plus another million+ community college FTEs, which would work out to a $1,200 loan from each student. Hopefully, all deferrals will be paid back and Prop 98 will not be suspended (all dependent, of course, on sustained economic growth and passage of the budget as submitted in January), so, for the first time in seven years, the $1,200 debt will be repaid in full* and on time.

      Second, the no. As I tried to point out, this debt has been spread very unequally among students.
      – Students in basic-aid/excess-tax districts have borne none of it, and will bear none of it next year either.
      – Students in approaching-basic-aid districts in the 28 counties where the ERAF fund has been able to absorb the diversions will bear very little of it.
      – Students in low-property-wealth districts in the 28 counties where ERAF has been able to absorb the diversions will bear somewhat more than the $1,200 average.
      – Students in low-property-wealth districts in the 26 low property-wealth counties (or in Amador, San Mateo, Napa or Marin counties) will bear a disproportionately larger share than $1,200.

      Thus, if it’s all paid back on time, no losers*. But, to whatever extent it is delayed again, the losers will be those who are already struggling with other disadvantages.

      * Here I’m explicitly not dealing with the $1.8 billion of Prop 98 underfunding, the $4.5 billion of Prop 98 maintenance factor, or schools/com colleges’ share of the $5.4 billion of unfunded mandates that will still be on the books at the end of June 2015. There is only so much ‘not dumbing down’ I can do before we all drown in the weeds.

  15. April Raffel 3 years ago3 years ago

    This initiative "Protection of Local School Revenue Act" will create stable cash flow and funding to our schools. This raises NO taxes or fees, and returns local property taxes that should be going to the schools, increases transparency, returns $7 billion in income taxes to the State's general fund so it can pay state debts directly. Therefore, it will prevent the State from redirecting $7 annually of school allocated revenues to pay … Read More

    This initiative “Protection of Local School Revenue Act” will create stable cash flow and funding to our schools. This raises NO taxes or fees, and returns local property taxes that should be going to the schools, increases transparency, returns $7 billion in income taxes to the State’s general fund so it can pay state debts directly. Therefore, it will prevent the State from redirecting $7 annually of school allocated revenues to pay for non school related debts. It will create stable revenue for our schools, especially the poorest. Our State Constitution says, “Education shall be a top priority”. This year our California schools are revamping testing procedures with Common Core and Smarterbalanced tests to create an educated child with critical thinking skills for the 21st century. We are 50th per pupil spending for our children in Califonria. Let’s do something that is right for our children since they need to be competitive in the global economy and give them the tools to be successful. This is an initiative which will to send the voice to Sacramento that our children’s education comes first. Please support this Educate Our State Initiative and email them at YesForEducation.org for ways to get involved and sign the petition:)

  16. Don 3 years ago3 years ago

    Jennifer, You really laid it out. This is no less than highway robbery of education funding and you made the case in a fashion that most people can readily understand - no easy task that is - boiling down financial accounting for public consumption. Reducing these seizures through the initiative process is one of many problems and just as deferrals have been treated as "inside baseball" by the media and not worthy of coverage, so … Read More

    Jennifer,

    You really laid it out. This is no less than highway robbery of education funding and you made the case in a fashion that most people can readily understand – no easy task that is – boiling down financial accounting for public consumption.

    Reducing these seizures through the initiative process is one of many problems and just as deferrals have been treated as “inside baseball” by the media and not worthy of coverage, so is the widespread cost to children of an inefficient bureaucracy and a labyrinthine education code – the end result of which is less than half of education funding going directly to classrooms and day-to-day learning.

    This initiative goes a long way in beginning to right the many wrongs perpetrated upon California’s school children.

    Many thanks for all your efforts in a truly honorable quest.

  17. Katherine Welch 3 years ago3 years ago

    Thank you, Jennifer, for articulating the price the poorest children in the state have paid for the last 10 years because they were forced to pay the debts of the state. They cannot make up that education - it is lost forever. The urgency is real:one, for this reason and two, because there is enough to go around. We will never rise above the bottom of the nation in public education until we have transparency … Read More

    Thank you, Jennifer, for articulating the price the poorest children in the state have paid for the last 10 years because they were forced to pay the debts of the state. They cannot make up that education – it is lost forever. The urgency is real:one, for this reason and two, because there is enough to go around. We will never rise above the bottom of the nation in public education until we have transparency in our finances.

    Let’s first get schools what they are reported to be receiving. Ten years ago cities, counties and special districts (yes, even mosquito abatement) received a guarantee that they would receive their allocation of local property taxes – isn’t it time to give schools and schoolchildren that same guarantee? This volunteer effort needs boots on the ground, and financial support. It’s not too late to be part of the solution. We know it’s not traditional politics, but if we act now there are no losers, and we don’t need any villain. Let’s try that for a change.

    For the children of California, the future of California. NO new taxes. Transparency. People say where is the money coming from? It is NOT new revenue for schools – this is about cash flow. Schools keep their $7 billion in property taxes, and the state keeps the $7 billion in income taxes that it does not need to use to top off schools (of course schools will still need state support, but $7 billion less). Then the state pays its debts directly and reports its expenses accurately. It is a critical fix for our state.

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