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.
To get more reports like this one, click here to sign up for EdSource’s no-cost daily email on latest developments in education.