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Education Funding Diversions

Education Funding Diversions

Warning: The reality of what the state has done with taxpayer money allocated to our children and our public education system can be disheartening. Please believe us when we tell you that together we CAN and we WILL stop this madness. 

We welcome the opportunity to explain any of the legislation below; it can seem overwhelming at first. Reach out here. You do not need to become a finance expert, but instead to understand there is a pattern here that is hurting our children, our public education system, the integrity of our government and the future of our state. Here goes...

 

$10 BILLION A YEAR

How Education Funding Diversions

Have Grown Over Decades

Parents and voters are puzzled.  Why are our state and property tax bills so high -- yet local school funding seems to be so low?

School board members are puzzled.  Why is funding flat for schools -- when local real estate prices are skyrocketing, home sales are robust, the State General Fund is growing, and so much new construction is sprouting up nearby?

Pundits, politicians and PACs blame perennial scapegoats:  Proposition 13, illegal immigrants, “greedy” teachers’ unions, wealthy basic-aid districts, pensions, top-heavy administration, to name a few. 

Academic papers dissect school funding from every angle, but miss a black hole:

California government has developed a bad habit of diverting educational funding from our schools
to solve unrelated problems.

As activist parents, we analyzed where our school revenue was raised, looking hardest at local property tax. There we discovered how billions of dollars of revenue allocated to our schools is routinely manipulated away.  It was truly disheartening to see how local property taxes were taken, overwhelmingly from our poorest children, weakening our public education system.  We came TOGETHER to make a difference -- believing we could expose and stop these diversions. JOIN US -- pause the endless local fundraising for basic programs and step up to reclaim funding statewide. Join us to strengthen school funding and transparency. 

Here are the facts that will help you make sense of Legislative Analyst Office Whitepapers and Ed-Data district funding information.

Local Funding Was Stripped Away from Schools (AB 8 Split of 1979)

What Happened: In the aftermath of Proposition 13, the Governor and Legislature told cities and counties to make up their lost revenue by taking an average of 30% of the existing property tax allocation to schools.  More was taken away in high-tax, industrial counties that had seen the largest cuts from Proposition 13, less was removed in suburban and rural counties.  Sacramento promised to make up the schools’ losses from the State's General Fund.

Result:  This significantly reduced the stable, reliable share of property taxes flowing to K-12 schools (dropping the allocation below 10% for San Francisco’s schools and under 25% for schools in Los Angeles, Alameda, and other major industrial counties, while leaving suburban and rural counties at  40%+, including like Marin, Santa Barbara, and Napa). 

Lessons:  Many schools (especially urban ones) became heavily dependent on the State’s General Fund.  Revenue for schools switched from stable local property tax to unstable state income tax revenue—which fluctuates with the State’s economy.  Without changes to local property tax allocations, increased tax revenue and changes to Prop 13 only provide minimal extra funding in most urban areas. (In San Francisco, K-12 schools only get 10 cents out of every dollar of increased property tax.) 

Proposition 98 is Routinely Manipulated and Undermined

Background: After Proposition 13 reduced education funding, voters approved Proposition 98 (1989) to give K-14 schools a “fair share” of the state’s growing budget.  But, no sooner had voters acted than actions were taken to undermine that funding…

     Prop 111: “Traffic Congestion Relief and Spending Limitation Act Of 1990”

What Happened:  The Legislature, under cover of raising gasoline taxes for highways and requiring a balanced budget, gutted Proposition 98 by introducing “Test 3.”

Result:  Test 3 allows the state to cut back funding to education during a slow economy with only “maintenance factor” promises to catch up education funding when times get better.  Any reductions to education funding are not repaid.

     Proposition 30 (2012): “Temporary Taxes to Fund Education…”

What Happened:  The Governor proposed, and the Legislature passed, a state budget that included new funding proposed under Proposition 30 as part of Proposition 98 funding to schools—so funding to schools would be cut if it didn’t pass.  Under the “promise” of funding education through increases in personal income and sales taxes, voters approved Prop 30.  But …

Result:  While the State was able to pay off delayed obligations to schools, the changes Proposition 30 made to the state constitution actually diverted funds away from schools in the long term.  $6B of new taxes were added temporarily, but $6B of existing sales tax was removed from the Proposition 98 calculation permanently, resulting in a $2.4B annual loss to education unless Proposition 30 were renewed!  Hence the need for Proposition 55 (2016). 

Lesson:  Be suspicious of any proposition by the Governor or Legislature that impacts education funding -- however neutral the Legislative Analyst’s summary may be.

 

$1 Billion of School Property Tax is Now Branded “Excess” and Quickly Moved Out of Education

Background - School Districts:  After the AB 8 Split and Proposition 98, the Legislature reclaimed the portion of school property tax given away in 1979 for education.  It set up an Educational Revenue Augmentation Fund in each county to share the reclaimed portion among its least-wealthy districts.  However, the sharing stops once the state’s target district revenue is met -- and then the “excess” is handed off to local governments.  

Result:  Introduction of the new, flat (not adjusted for regional costs), statewide Local Control Funding Formula in 2013 has meant that districts in the most expensive counties in the state face flat budgets while local costs (and local property tax revenues) skyrocket.  $300 million of “excess” school revenue will be redistributed by the mayor in San Francisco this year; $270 million in Santa Clara County; $230 million in San Mateo County, ditto Marin, Napa, etc. This is revenue that was collected from the taxpayers for education, and it would have made a big difference to the poorest children in the richest counties (for more detail see https://www.educateourstate.org/impact).

Background - County Offices:  County Office of Education property tax was split between oversight and special education (SELPA) functions -- ranging from 0%-80% depending on how special education funding was levied in July 1977. In 2013, the Legislature ruled that County Offices of Education must hand over all oversight property tax revenues in excess of their LCFF targets to pay state’s trial court costs.  COEs weren’t allowed to transfer “excess” oversight funds to support their SELPAs.  

Result:  In 2014, $17 million was transferred, it has grown to $90 million in five years and will top $100 million next year.  Had the money been channeled into Special Education by tweaking the allocation factor, it would have opened up $44 million this year in additional Proposition 98 funding.  

Lesson:  Cities, counties and the Legislature play the “property tax is inequitable” card to grab as much stable, reliable funding away from schools as they can.  Constantly.

 

The “Triple Flip” & The Vehicle License Fee (VLF) Swap (2004)

What Happened:  The Legislature needed to fund $11 billion of deficits AND pay its revenue sharing obligation to local governments for vehicle license fees when the Governor reduced those fees.  Both the “Triple Flip” and “VLF Swap” diverted local property taxes allocated to schools to satisfy these debts to cities and counties, promising that "Proposition 98 would hold schools harmless."  

Result:  Throughout the recession, billions of dollars of stable property tax were removed from schools, then the schools got “deferrals” from the State’s Proposition 98 “hold harmless” guarantee -- IOUs instead of cash.  Worse, the mechanics of the VLF Swap actually shifted billions more school property tax away than the State’s underlying obligation ($2.5B extra in 2014-15 alone).  The decision to tie the diversion of school property taxes to the increase in county property taxes vs. the underlying obligation of vehicle license fees, drained school and state funding by $10 billion of vital 2008-2015 recession funding.  The Triple Flip finished in 2015, but the VLF Swap has no end date, and is growing to $9B next year. Thus $9B of schools’ share of stable, reliable local property taxes will be taken away -- making their funding less secure and their cost to borrow money higher.

Lesson: The Legislature is always eager to ‘make a deal’ handing school property tax to local governments, promising to pay schools back, but the State is a lousy credit risk.

 

Schools Are the State's Lender of Choice in Hard Times

What Happened:  When the State economy contracted (2008-2012), the State not only reduced actual Prop 98 spending to schools but also issued $10B in IOU’s (deferred payments to schools).

Result:  This forced schools to incur borrowing costs (though the payments were deferred they still had to pay their staff, etc.), raid reserves (reducing interest income and scaling back capital projects), and cut programs/raise class sizes in order to pay their bills.

Lesson: When hard times come, our schools are forced to bear the costs of the State’s debts.  

 

Unfunded Promises Have Consequences

Background:  At the height of the dot-com bubble (1999), the Legislature was persuaded to increase teacher benefits and reduce pension payments, but without anticipating a future funding stream to support these changes.

What Happened:  The dot-com bubble burst and state revenues fell.  The unfunded liability in CalSTRS grew rapidly to $80B+. The Legislature finally took action in 2015, dumping the majority of the financial burden on school districts without increasing funding to help districts absorb these costs. The state’s 1999 decisions became the schools’ 2019 burdens.

Result:  Schools educating today’s and tomorrow's students are forced to pay for these promises now (and for the next 29 years) – with the result that future ‘spending on students’ is really just paying for teaching decades ago plus the lost interest on that obligation.

Lesson:  Unfunded commitments and mandates grow until someone is forced to pay them.

 

Cities Covet School Funding for Redevelopment

What Happened:  Cities discovered that redevelopment measures were much more lucrative after Proposition 13.  The rollback of property values to 1975 levels built in large tax revenue increases after any sale, even if no redevelopment activity occurred. The Governor and Legislature ignored that fact, allowing cities to remove another 20% of the property taxes that still remained to schools, assuming these losses would be “made up” from the State's General Fund.

Result:  By 2010, 14% of all property tax was being consumed by redevelopment agencies -- over half of it out of schools’ allocation. The Governor & Legislature tried to limit redevelopment – only to discover that most funds had been committed to debt service. 

Lesson:  Cities, hungry for infrastructure revenue, are watching for an opportunity to take property taxes away from schools again. Senate Bill 5 in 2019 passed easily in the Legislature; thankfully it was vetoed by Governor Newsom in October (for details see EducateOurState.org/NoOnSB5). This effort WILL be back in 2020 -- we need YOU to help stop it.

While voters and parents work hard to get money into schools -- others work smart to get it out again.

 

Inequitable Application of Proposition 13

Background:  Commercial property owners have successfully sued and lobbied California governors and legislatures to create loopholes.  Real estate partnerships and large commercial investors hide behind small business owners to escape property tax increases.

Result:  This reduces overall property tax revenues and shifts the burden of paying for local services onto homeowners.  Because fewer homeowners bother to take the $70 homeowners’ exemption, staffers claim this shift hasn’t occurred.

Lesson:  Money and successful lobbying have limited local taxes for some privileged property owners, while creating a large group of home-owning voters who, since they’re paying a lot in taxes, expect more from their cities, counties, local services and schools than they receive. 

Why are our taxes so high, while our school funding is in the cellar?

Because school funding is the easiest to raise -- and raid.

 

Contact us to give kids a voice – or if you have questions or need more information.

Together we can make a difference.

 

Contact us here if you would like a 2-page PDF of this information. Thank you.

 

Updated 12.3.19