Expanding their taxing power would be one way to provide school districts more money

July 26, 2017

Rick Simpson

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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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