The funding mechanism of SB 5 takes what little property tax revenue remains in California's most disadvantaged school districts. SB 5 forces even more of the state’s poor credit risk onto our most vulnerable schoolchildren. Of the 37 rated states, 31 are more highly rated than California -- despite our much-vaunted “Rainy Day Fund.” Indeed, the California State Treasurer’s website shows us tied with Louisiana -- and rated below Mississippi and West Virginia.
In light of the Constitutional first set-aside clause and the Serrano v. Priest rulings, this is unacceptable and inequitable.
Recent history has clearly illustrated that Proposition 98 is no guarantee against state diversions of school property tax. In 2004, Governor Schwarzenegger and the Legislature promised that Proposition 98 would “hold schools harmless” when they authorized local governments to take a $4 billion share of school property tax in lieu of the state’s vehicle license fee obligation (SB 1096 , referred to as the VLF Swap). Eight years later, voters were handed a choice: approve $6 billion more in taxes or school funding would be cut by $6 billion, EXACTLY the tax share the VLF Swap was then taking.
A $6 billion cut, as California was stumbling from 31st to 38th in the country for school finance, was unthinkable. So, how precisely was the worthlessness of this promise allowed to develop? Just four years after SB 1096, the recession hit and the state began deferring its payments to schools to solve its budget shortfalls. It deferred $4 billion in 2008, then $5.5 billion in 2009. By 2012, the encroachment had swollen to $10 billion. At that point, when the VLF Swap diversion of the schools’ stable, reliable property tax had grown to $6 billion a year, the Governor announced he would suspend Prop 98 and cut school funding by -- $6 billion. Only the passage of Proposition 30 could stay his hand. (Page 62, Governor’s 2012-13 budget summary.) Burying an unrelated governmental decision in school funding had unconscionably put education directly into the line of fire.
Aside from the risk of substantial long-term cuts, districts suffered from the deferrals themselves, which resulted in program cuts, layoffs, class size growth, and borrowing. Which districts suffered most? The most cash-strapped.
The VLF Swap had stripped ALL property tax from schools in San Mateo County’s most highly disadvantaged districts, including Ravenswood (East Palo Alto) and Redwood City. With no local property tax funding, deferrals meant that HALF their base funding arrived AFTER the end of the school year. Note that San Mateo was an excess ERAF county — every penny of every school district's base funding could have been paid, on time. Yet San Mateo was not even the most impacted county. Please read the Stanford Youth Education and Law Program's analysis of the disproportionate impact of this hold-harmless Prop 98-guaranteed diversion across the state, particularly on the poorest counties and schools. You will see that the price of this ‘hold-harmless financing mechanism’ was paid by the some of the poorest children in the state.
And SB 5? In at least 19 counties, the first dollar of funding would come directly from school districts’ own, direct, property tax allocations. Not from ERAF. In 19 counties, SB 1096 has already claimed all ERAF funding — and encroached upon schools’ own direct property tax. Where would SB 5 take stable, reliable property tax directly from local schools? Where would it leave them even more reliant on the boom-and-bust of the General Fund? San Diego, Kern, San Bernardino, Fresno, Tulare, Riverside, Butte, Imperial, Kings, Shasta, Stanislaus … plus five small counties … AND the poorest districts (and not the advantaged ones) in Napa, San Mateo, and Marin.
Nothing would be taken, in Marin, for example, from the wealthy Ross Elementary or Tamalpais Union High districts. Instead, SB 5 would dig into what’s left in Novato and San Rafael Elementary, which respectively already see $11 million and $7 million a year of their own directly allocated property tax revenue taken for the Legislature's VLF diversion.
Not that we wish to imply that it is acceptable to dip into Education Revenue Augmentation Fund in any county -- ERAF represents the restoration of the schools’ share of property tax, taken from education by the Legislature’s AB 8 Split, a year after Proposition 13. Property tax is the mother’s milk of local funding. ERAF shares that stable, reliable stream between the haves and have-nots in each county. ERAF allows the school children in Alum Rock and East San Jose to share in the fiscal security enjoyed by Palo Alto, Saratoga, and Los Altos Hills. Or it did before the VLF Swap. And now with SB 5 you propose to increase this diversion by another $2 billion a year.
No. The California Constitution clearly states, "From all state revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education.” (Article XVI, Section 8) SB 5 flies directly in the face of that commitment.
SB 5 also runs immediately counter to the equal protection clauses in the state and federal Constitutions. The Serrano v. Priest rulings found that the state’s school funding scheme "invidiously discriminates against the poor because it makes the quality of a child's education a function of the wealth of his parents and neighbors.” Anything that strips property tax out of Novato, Alum Rock, East Palo Alto, San Rafael, Redwood City and East San Jose — making those districts uniquely dependent upon the state of the General Fund — when there’s a “surplus" of property tax already allocated to education in their counties and multiple basic-aid districts — very clearly discriminates on local wealth.
We oppose SB 5’s proposed financing mechanism and recommend you take this opportunity to pursue transparent mechanisms that do not make our poorest school children more vulnerable. We would welcome the opportunity to discuss this.