Christopher Schodt for EdSource
Rick Simpson

Rick Simpson didn’t write Proposition 98, the complex formula that determines how much money in the state budget goes to K-12 schools and community colleges each year. But for three decades after its inception in 1988, Simpson was an expert in its implementation as a senior adviser on education for nine Assembly Speakers.

Now recently retired, he’s pitching a tax proposal that would liberate schools from Prop. 98’s constraints. He says the only realistic way for schools to raise significantly more revenue is to give districts more authority to tax themselves. It will take a constitutional amendment, which he hopes that either the Legislature or voters, through an initiative, will place on the 2020 ballot. At this point, though, it’s just talk. No leaders or groups have stepped forward to embrace it.

Simpson is selling the concept at a time when the school districts are projected to head into a period of rising expenses and slow revenue growth. Within the next year or two, the Local Control Funding Formula, the 2013 law that Gov. Brown championed, will reach full funding, which means that all districts will have revenues restored to pre-2008 recession levels, plus the cost of inflation. Districts with high proportions of low-income students, English learners, homeless and foster youths, who benefit from the local control formula, are already above that minimum level.

“All we did with LCFF was redistribute money, not raise more of it or deal with the question, Are we investing adequate resources in education?” Simpson said.

California, Simpson said, remains in the bottom tier of states in education funding — the exact ranking varies by methodology — and Proposition 98 won’t change that. Prop. 98 has provided an average of about 42 percent of General Fund revenue, though the percentage has varied from year to year, subject to California’s boom and bust revenue cycle, according to the Legislative Analyst’s Office.

“One could make the argument that Prop 98 had a goal — getting to the average of top 10 states in student spending,” Simpson said. One section of Prop. 98 indirectly refers to that aspiration. But the formula itself wasn’t created to actually achieve it, he said.

The funding formula sets yearly increases for education tied to rises in state personal income and student enrollment in good revenue years. In slow revenue years, the increase is calculated on a lower standard — the rise in the general fund revenue and enrollment. If there is a difference, the state promises to pay the amount later.

In 2012, at Gov. Jerry Brown’s urging, voters passed Proposition 30, a temporary increase in the sales tax and on the incomes of the state’s wealthiest earners. But Prop. 30’s primary impact was to speed up repayment of money that schools were already owed from past cuts. Last year, voters extended the income tax increase until 2030.

In the state budget for the fiscal year that started on July 1, Brown persuaded the Legislature to suspend a law guaranteeing that, in slight revenue years, schools and community colleges would get the same percentage  increase as non-Prop. 98 areas of the budget, like prisons and Medi-Cal. Meanwhile, districts will face a huge increase in pension costs totaling about $1 billion annually.

“It’s another example of how the governor and the Department of Finance have tools to fit Prop. 98 into their budget plans as opposed to make the budget fit into schools’ needs,” Simpson said.

Limited power of taxation

Cities and counties have the power to raise general taxes, primarily the sales tax, with a simple majority approval. School districts and community colleges can’t. While they can pass construction bonds with a 55 percent majority, they can only pass “special taxes” requiring a two-thirds voter approval, for ongoing expenses. And their choice of special taxes is limited to the parcel tax, a uniform amount per property. About one in 10 school districts, primarily districts in the Bay Area, have approved them.

Simpson said he hasn’t presented his proposal to Brown, but says, “Jerry should groove on this, for it is the corollary of subsidiarity, the principle of shifting control back from the state to the locals.”

An initiative giving schools the ability to pass a general tax by majority vote would be only the first step, Simpson said. Legislators would then have to decide which forms of general taxes schools would have the authority to levy. There could be a menu of choices including taxes not yet tried — or simply the existing authority for a parcel tax at a lower threshold. Simpson doesn’t like the latter because “parcel taxes are regressive,” he said, imposing the same dollar amount per property, regardless of its value or property owner’s wealth.

The Legislature would also have to equalize the ability of districts to raise additional money. The state would need to compensate poor districts lacking the capacity and resources of wealthier districts. This might require matching money from the General Fund, or the Legislature could require that a portion of local taxes go into an equalization fund for poor districts.

Kevin Gordon, president of Capitol Advisors Group, an education consulting company based in Sacramento, predicted that voters would be sympathetic to a local school tax option, depending how it’s presented, because “voters understand that schools are woefully funded” compared with much of the nation.

“I think an authority to tax only for education would have traction,” he said.

CAFwd, a nonprofit focused on revenue and state governance reforms, hasn’t studied the idea of letting schools pass a general tax. But co-chair Lenny Mendonca said he personally favors “exploring giving more local choice to school districts across the state to decide how to pay for their priorities.” He agrees that any tax expansion must include a way to equalize the tax burden. As a matter of principle, requiring a two-thirds majority to pass a tax should never have happened. “It’s not democratic,” he said.

David Kline, vice president of communications and research for the California Taxpayers Association, disagreed. “The two-thirds vote requirement gives taxpayers a small bit of protection, and should be preserved,” he wrote in an email. “Expanding school districts’ taxing authority would lead to even higher taxes in a state where families already face a very high tax burden, and would increase the complexity of the tax structure by creating more differences in tax rates from one neighborhood to the next.”

And Jon Coupal, president of the anti-tax Howard Jarvis Taxpayers Association, said that he would characterize expanding school districts’ taxing capacity as “an assault on Proposition 13.” The 1978 initiative said that only cities and counties have the authority to levy general taxes by majority vote. The two-thirds requirement requires school districts to engage voters and shouldn’t be changed,  he said.

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  1. Jeff Camp 11 months ago11 months ago

    California's existing, top-down funding model for education is perfectly crafted to deliver only skimpy support to schools. Voters and taxpayers much prefer to vote for taxes that support their OWN schools. Simpson's concept is a good one and should be taken seriously: provide state matching funds to support local funding effort, varying the level of the match according to local capacity. This approach can support equity and recruit more local funding if designed well. The … Read More

    California’s existing, top-down funding model for education is perfectly crafted to deliver only skimpy support to schools. Voters and taxpayers much prefer to vote for taxes that support their OWN schools. Simpson’s concept is a good one and should be taken seriously: provide state matching funds to support local funding effort, varying the level of the match according to local capacity. This approach can support equity and recruit more local funding if designed well. The idea has also been called the “tandem bike” funding model (tandem=state + local). It was discussed at some length by the state task force set up in response to the Getting Down to Facts research.

  2. Paul 12 months ago12 months ago

    The notion that "Sacramento created the financial burden of the CalSTRS pension" is wrong on so many levels. School districts used the pension as a sop for low teacher salaries, especially once better-paying professions were opened to women, and later, to people of color. Districts would have balked at paying market wages for degreed professionals, let alone on a present rather than deferred basis. Historically, STRS was the least generous of California's three major public-sector pension regimes. … Read More

    The notion that “Sacramento created the financial burden of the CalSTRS pension” is wrong on so many levels.

    School districts used the pension as a sop for low teacher salaries, especially once better-paying professions were opened to women, and later, to people of color. Districts would have balked at paying market wages for degreed professionals, let alone on a present rather than deferred basis.

    Historically, STRS was the least generous of California’s three major public-sector pension regimes. The employee contribution rate was relatively high, employees always did contribute (compare the UCRP “contribution holiday”, and “employer pays the employee share”, for certain groups in PERS), the pension formula was always moderate (compare PERS formulas, especially public safety), and classroom teachers had no opportunities to “spike” their low pensionable salaries with overtime or promotions in the final year.

    The deferred cost of teachers’ work is now coming due.

    Replies

    • John Fensterwald 12 months ago12 months ago

      I agree with you to an extent, Paul. Classroom teachers couldn't spike their pensions, but superintendents and top administrators could and, with the school boards' OK, did all the time. Teacher pensions were far less generous than public safety pensions, but teachers could retire with a full 60 percent of pay, I believe, after 30 years -- in their late 50s. They also benefited from pension holidays in the late '90s, when legislators believed the … Read More

      I agree with you to an extent, Paul. Classroom teachers couldn’t spike their pensions, but superintendents and top administrators could and, with the school boards’ OK, did all the time. Teacher pensions were far less generous than public safety pensions, but teachers could retire with a full 60 percent of pay, I believe, after 30 years — in their late 50s. They also benefited from pension holidays in the late ’90s, when legislators believed the stock market would hit 30,000 because of the tech bubble.

  3. SDParent 12 months ago12 months ago

    I'm with El; this doesn't sound like a realistic plan. Sacramento created the financial burden of the CalSTRS pension problem (read the LAO reports), but now local school districts are supposed to solve the problem by taxing themselves? This also assumes that local school districts can be fiscally responsible (which San Diego Unified is not--it deficit-spent $91 million in 2016-17 and was forced to cut $124 million from the 2017-18 budget and laid … Read More

    I’m with El; this doesn’t sound like a realistic plan. Sacramento created the financial burden of the CalSTRS pension problem (read the LAO reports), but now local school districts are supposed to solve the problem by taxing themselves? This also assumes that local school districts can be fiscally responsible (which San Diego Unified is not–it deficit-spent $91 million in 2016-17 and was forced to cut $124 million from the 2017-18 budget and laid off hundreds of employees).
    What about schools in conservative areas (e.g. Orange County)? Are they supposed to have less per pupil because the voter base as a whole doesn’t support increasing taxes?
    Will there be support for a redistribution of the locally-generated tax revenue? The truth is that poor areas already get significantly more funds due to the apportionment under LCFF. Granted, these funds are supposed to be for the education of the low income and English learner students. I don’t see strong support for the concept that additional money raised locally should be shared with other areas.
    Bottom line, the problem is not about local jurisdictions not having the opportunity to independently tax themselves. It’s about Prop 13 gutting the stable source of property tax revenue that schools in the rest of the nation rely on and keeping the maximum increase below the rate of inflation, which continues the decline in investment. Remember, Prop 98 was a response to Prop 13. As a state we need to stop dancing around this issue (by lowering thresholds for parcel and bond taxes so that individual districts can try to raise funds) and buckle down and face what really created this problem and solve that.

  4. Irene Shen 12 months ago12 months ago

    Part of what got passed in 1998 is SB50, which limited the city or local government’s ability to set mitigation fees for school impact. So cities cannot reject development based on impact to schools or set their own school impact fees, making overcrowded schools a huge problem for many municipalities. It is a well-intended formula for disaster.

  5. el 12 months ago12 months ago

    Honestly I think this is exactly the wrong direction. I understand the impulse, but I don't think he's really thought about how unequal districts truly are in their ability to generate income within their borders. I wonder if the idea of "this is your local tax but you only get to keep X percent" is going to be terribly attractive. I think it would also make interdistrict and charter transfers more problematic if money doesn't follow … Read More

    Honestly I think this is exactly the wrong direction. I understand the impulse, but I don’t think he’s really thought about how unequal districts truly are in their ability to generate income within their borders. I wonder if the idea of “this is your local tax but you only get to keep X percent” is going to be terribly attractive.

    I think it would also make interdistrict and charter transfers more problematic if money doesn’t follow the kids.

    We really are best off raising the money statewide.

  6. Mike McMahon 12 months ago12 months ago

    The notion of the state would need to compensate poor districts lacking the capacity and resources of wealthier districts. This might require matching money from the General Fund, or the Legislature could require that a portion of local taxes go into an equalization fund for poor districts sounds like it addresses the Serrano v Priest issues of the 70s. I just wondered how the implementation would be equitable. When taxpayers of a school district passes … Read More

    The notion of the state would need to compensate poor districts lacking the capacity and resources of wealthier districts. This might require matching money from the General Fund, or the Legislature could require that a portion of local taxes go into an equalization fund for poor districts sounds like it addresses the Serrano v Priest issues of the 70s. I just wondered how the implementation would be equitable. When taxpayers of a school district passes a local tax find out that poorer districts will benefit I wonder how they will vote.

    Replies

    • Don 12 months ago12 months ago

      It’s a double tax. The school district passes a tax increase and then that locality pays again when the state uses general revenue funds to match.

      • FloydThursby 12 months ago12 months ago

        Don, you've always opposed San Francisco putting general fund money into SFUSD saying we should just rigidly follow a formula which has our funding per pupil at 526 of 821 districts. In a city where some families spend $40,000 per child, why shouldn't we be able to have a sales tax benefit poor children, provide tutoring for each child behind on test levels from 2d grade? I'm on a school site council where … Read More

        Don, you’ve always opposed San Francisco putting general fund money into SFUSD saying we should just rigidly follow a formula which has our funding per pupil at 526 of 821 districts. In a city where some families spend $40,000 per child, why shouldn’t we be able to have a sales tax benefit poor children, provide tutoring for each child behind on test levels from 2d grade? I’m on a school site council where they said all the money is spent, 99% on salaries, 1% on supplies. There is zero flexibility and $3 million houses within a tenth of a mile and $20 million houses within a quarter mile of the school. It’s ridiculous for us to be spending less per pupil than Fresno does. We pay our Mayor and police #1 but teachers 526 of 821 districts. Something has to change. We can’t just oppose every idea in the absence of an alternative to increase funding. If general fund money is wrong and this is wrong, what should we do to get funding to be commensurate with other states and cities as a percentage of GNP and considering the high cost of living in San Francisco?