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Proposed Initiative Would Give School Districts Back Their Property Taxes

Proposed Initiative Would Give School Districts Back Their Property Taxes

Proposed initiative would give school districts back their property taxes

February 14th, 2014
By John Fensterwald

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The parent activists who formed Educate Our State say it’s time for the state to stop robbing Peter to pay Paul. Peter, in their view, being the schools and the theft being billions in property taxes.

The San Francisco-based parent organization is circulating an initiative for the November ballot that it says would sever budget machinations that have contributed to school districts’ and community colleges’ financial distress since the Great Recession and leave them vulnerable when the next economic downturn comes.

The nine-page ballot measure, involving a constitutional amendment and four statutory changes, would delve into the complexities of the “triple flip” of 2004 and other clever financing moves that legislators invented while playing a shell game with shrinking public money. But the result of the initiative, “Protection of Local School Revenues Act of 2014,” would be simple: permanently return about $7 billion in property taxes that school districts would have had this year if then-Gov. Armold Schwarzenegger and the Legislature hadn’t shifted the money to cities and counties to cover, in turn, what the state owed to them. The ballot measure would prevent the state from tampering with school districts’ property taxes in the future. Voters already have given cities and counties that protection; they did that by passing Proposition 1A in 2004.

Schools and community colleges are funded through a combination of local property taxes and state taxes. This year, property taxes contributed 16.7 percent of revenue for K-12 and community colleges; that portion would have doubled, to 33.3 percent, if the state hadn’t redirected more than $7 billion owed to schools, according to calculations by Jennifer Bestor, an Educate Our State parent from Menlo Park with a background in finance, who has been deeply involved with the initiative.

The ballot measure wouldn’t increase money for schools and community colleges; that’s not the intent, Bestor said. Instead, the initiative would swap a volatile source of revenue currently coming to schools – state taxes – for property taxes, a more stable and reliable source that had previously belonged to the schools, she said.

Late payments to school districts illustrate why this is important, Bestor said. After state revenues plunged in 2008, the state responded by postponing payments of money owed to K-12 schools and community colleges to the following fiscal year. Known as deferrals, the late payments grew to nearly $10 billion in 2010-11, nearly a third of the state’s portion of school funding. Those districts that couldn’t borrow money from their county treasurer turned to other lenders and paid higher interest rates; districts in the worst financial shape, which couldn’t borrow, cut programs and jobs.

The districts most adversely affected by deferrals included districts in San Bernardino County and Ravenswood School District in East Palo Alto, which had the least property wealth per student and therefore relied on state revenue for most of their school funding. They also generally have high percentages of low-income children. Increasing districts’ reliance on state revenue to fund schools created more pain for schools, Bestor argues.

Gov. Jerry Brown is the first to acknowledge that deferrals, part of what he calls the state’s “wall of debt,” have harmed schools and community colleges. That’s why he is proposing to expedite ending late payments by paying off the last $6 billion in deferrals in the 2014-15 state budget. And, to deal with the volatility of state revenues, Brown wants the Legislature to create a bigger rainy day fund tied to fluctuations in capital gains revenue. He would add a second tier of protection within the rainy day fund to smooth out spending under Proposition 98, the formula that determines the annual level of school funding.

Bestor takes cold comfort in these measures. As Brown observed in his summary for the 2014-15 budget, since the Second World War, the state has seen an economic recession every five years, on average, and it’s been 4 ½ years since the last one, leaving schools vulnerable once again to manipulations of the Prop. 98 guarantee if revenues fall.

And a rainy day fund doesn’t address the issue at hand: “First, make us whole; give us our stable, reliable stream back, instead of protecting us from the volatile conditions we have been force-fed,” she said.

Stiff opposition from counties, cities

For supporters of the initiative, the cause is just and the need self-evident. But qualifying for the November ballot by relying on parent volunteers to collect 1.3 million signatures at farmers markets and outside school property by mid-April will be challenging. (Signature gatherers can be spotted wearing Dr. Seuss red-and-white striped “Cat in the Hat” stovepipe hats.) And if the initiative does make the ballot, it will face formidable opposition from cities and counties, which already are complaining that Brown and the Legislature have cut social services severely and unloaded public safety responsibilities on them.

The initiative would free up $6.8 billion in the General Fund but requires that the state backfill only $4.3 billion that cities and counties would lose in property taxes. That was the initial amount that was transferred to them in 2004. Since then, the revenue, tied to growth in assessed valuation, has grown by $2.5 billion, which the Legislature may or may not cover when the changes take effect.

“The Educate Our State initiative would impose a severe and immediate reduction to county and city property taxes of about $2.5 billion in 2015-16 and growing over time,” Matthew Cate, executive director of the California State Association of Counties, wrote in an email. “This means counties and cities across the state would have to reduce public services that rely on general purpose revenues, which essentially means public safety reductions. It is difficult to contemplate what a reduction of $2.5 billion in public safety services looks like in our communities, particularly when counties have assumed significant new responsibilities for incarcerating, supervising and rehabilitating new offender populations.”

Katherine Welch, a board member of Educate Our State, said that the organization will announce endorsers of the ballot measure on April 1. Meanwhile, it is asking school boards to back a resolution of support and let elected officials know they’re behind it.

John Fensterwald covers education policy. Contact him and follow him on Twitter @jfensterSign up here for a no-cost online subscription to EdSource Today for reports from the largest education reporting team in California.