Pension costs feed resistance to higher school taxes in California county, study finds

November 14, 2019

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The unexpected defeat in 2016 of a school parcel tax in wealthy Marin County and the near-defeat of another in the county that same year prompted a trio of authors to look into what had turned many voters against them.

Their conclusion, in a report issued last week by the nonprofit Policy Analysis for California Education, was that the high cost of school employee pensions was very much on voters’ minds — a bad omen for other districts considering parcel taxes to supplement state funding for schools.

“State and local leaders should heed the lessons of increasing anti-tax sentiment in famously progressive Marin,” wrote Hannah Melnicoe, Cory Koedel and Arun Ramanathan in their report, “The Canary in the Gold Mine.” “Statewide and local leaders must prioritize the development of a statewide education funding solution that does not increase reliance on local taxation.”

One rejection and a close call don’t necessarily create a trend. Last year, Kentfield voters passed a lower tax increase with smaller annual increase, and results from other parcel tax votes last week show it may be premature to proclaim that a rebellion has begun.

Four out of five parcel taxes statewide passed with at least 73 percent of the vote, including the renewal of a 12-year, $589 parcel tax in the Reed Union School District in Marin County. The one parcel tax that appears to be losing, for $149 per year in Redwood City, was less than a half-percentage point below the two-thirds majority needed for passage, with some votes still to be counted.

But Ramanathan, the CEO of Pivot Learning, a nonprofit school district consulting organization, and Melnicoe, a senior program manager at Pivot Learning, insisted at a PACE seminar last week that, as the study’s title asserts, Marin County may be “a harbinger of perilous political dynamics around pensions, taxes and education funding for rest of the state.”

Ramanathan and Melnicoe produced a report earlier this year, “The Big Squeeze,” about the “threat” of unfunded school pension costs’ impact on equitable funding through the Local Control Funding Formula. Koedel, an associate professor of economics and public policy at the University of Missouri-Columbia, was the principal author of a study of the rising costs of school pensions for the Getting Down to Facts studies that PACE and Stanford University produced last fall. This was their first effort to gauge the public’s awareness of mandated pension expenses and other rising costs.

They focused on parcel taxes because they’re the only source of taxation that school districts have to supplement state funding. Parcel taxes must be a flat rate per property, regardless of whether it’s a small home or big office building, which has led to criticism that it’s a regressive tax.

Only about 10 percent of students in California are in districts with a parcel tax. Those districts are primarily in the San Francisco Bay Area — and most common in Marin County, one of the state’s wealthiest and most politically liberal counties, where 15 of 18 school districts have had them. Three years ago, voters in the Kentfield School District, where Gov. Gavin Newsom lived before moving to Sacramento this year, rejected the renewal of a parcel tax they had passed easily in 2008. In the Mill Valley School District, voters approved a parcel tax providing 20 percent of its budget — but with a margin of only two dozen votes.

Through focus groups, budget analyses and interviews with three dozen district and community leaders, the study’s authors found a growing frustration that increasing pension costs were crowding out school districts’ budgets, forcing cuts to programs that parents valued and competing with salary increases for teachers needed to keep pace with fast-rising housing expenses in the Bay Area.

The study projected that from 2011-12 to 2020-21, the cost of benefits — primarily pension contributions and health care — would rise from 18 to 25 percent of county districts’ budgets. Meanwhile, reflecting staff cuts and larger class sizes, teacher salaries would fall from 48 to 45 percent of the budgets.

“Due to growing concern that dollars are not reaching schools, but instead being used to fund pensions, parcel taxes have faced increasing opposition in Marin County,” the study said, while acknowledging that other costs, including special education — up about 20 percent in inflation-adjusted costs in a decade — and a loss of revenue from a decline in enrollment, are added pressures.

Soaring pension expenses

School districts’ share of contributions toward school employees’ pensions have more than doubled statewide since 2014, when the Legislature passed legislation to gradually pay down the huge unfunded liabilities of CalSTRS, the pension fund for teachers and administrators, and CalPERS, which administers pensions for employees without a teaching credential, such as bus drivers and secretaries.

Employees’ contributions and the state’s contribution, in the case of CalSTRS, have risen, too, but districts bear the bulk of the costs. By 2020-21, districts’ CalSTRS contributions will have risen from 8.25 percent to 19.1 percent of a teacher’s salaries. Because teachers’ pay is above the state average in most Marin County districts, their state-mandated pension contributions are higher, too.

Newsom did provide significant short-term pension relief, absorbing about half of districts’ increases to both state pension funds this year and next, but they will rise after that. Ramanathan and Pivot Learning have called on the state to permanently take on more of districts’ share of the costs and to consider alternative, less expensive retirement plans for new teachers.

Opposition to the 2016 parcel taxes led taxpayer activists in the county to form the Coalition of Sensible Taxpayers, which goes by the name CO$T. Founder and President Mimi Willard of Kentfield, a financial analyst, said the group is “not reflexively anti-tax.” Instead, it’s challenging school boards to justify the need for a parcel tax, to reduce the number of years a tax is in place and to switch from a flat dollar to a per-square-foot tax, which is fairer to owners of smaller homes, she said. The group has indicated that it might oppose a parcel tax increase the Tamalpais Union High School District is considering for the March ballot.

CO$T also is pressing local school boards to take on the pension issue but “gotten nowhere so far,” Willard said. “We tell them, ‘Go to Sacramento to fix the problem moving forward,’ so that it isn’t foisted on us. But nobody wants to stick their head out of the foxhole.”

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