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What is the ‘excess’ educational funding in San Francisco that you refer to, where did it come from?

What is the ‘excess’ educational funding in San Francisco that you refer to, where did it come from?

San Francisco is unusual in that it is both a county and a city, and contains only one school district, so it illustrates the phenomenon of “excess” school property tax well.

In 1977, before Proposition 13, San Francisco Unified School District’s levied a property tax of 0.83% of assessed (market) value to fund its schools.  Every property paid that level of tax for SFUSD because all local levies were independent of one another. (SFUSD’s levy was low for unified districts around the state — the average was 1%.)

Proposition 13 cut the sum of all local levies (for schools, city, and county governments) down to a total of 1%.  This reduced SFUSD’s share of the new, consolidated levy to 0.30% — just under a third of local taxes.  

At this time, the California state general fund -- fed by income tax -- was running a huge surplus.  The Legislature was able to use it to backfill about ⅔ of the property tax losses that Proposition 13 had cost schools, cities, counties and other local districts.  So, as school property tax revenues decreased, from $4.7 billion down to $2.3 billion, state funding grew from $3.5 up to $5.6 billion, for a loss of “just” $300 million.  

SFUSD per-pupil spending actually grew slightly, from $2,333 to $2,500 per student, with property taxes still providing 30% of total funding.  During a period of 10% annual inflation, this wasn’t great, but the property tax rolls continued to grow and enrollment dropped, as the swell of baby boomers aged out of the system.   

The following year, 15 months after Proposition 13, the Legislature decided to ease itself out of the roll of backfilling city and county losses.  The Legislature directed county controllers across the state to take away educational property tax allocations worth over $507 million (1979 dollars) — about 20% of the property tax still left in education — and give it to city and county governments.

In San Francisco, this meant that SFUSD’s share of total property tax revenues fell from 30% down to 8.5%, where it sits today.  In Los Angeles and Alameda counties, the allocation to education shrank to 23%. Elsewhere less was taken, so the median direct allocation education in California counties is 46%.

The financial whizzes among you will have just said, “Whoa!  Did you just tell me that schools were forced to swallow a big chunk of the cost of Proposition 13 for three large commercial counties — Los Angeles, San Francisco, and Alameda — and their cities?”

Yes.  The AB-8 Split buried the cost of servicing counties and cities with large commercial sectors in school funding, or, put differently, allowed some large counties and cities to keep spending on local services high, subsidized by the rest of the state via the school funding mechanism.

As the state’s general fund fortunes fluctuated over the next decade, the hole in school property taxes, and resultant large state general fund spend "on education," was unsustainable.  School funding ended up sliding downwards -- the “First to Worst” of the documentary film. Proposition 98 was passed in 1988, demanding that it fall no further as a proportion of total state spending.  

Forced to deplete its general fund monies to meet voters’ Proposition 98 demands for schools and community colleges, the Legislature responded by reversing its earlier AB-8 action.  In 1992 and 1993, it shifted property tax allocations away from cities and counties toward “Educational Revenue Augmentation.” But with a twist. The goal was not to grow education funding, but to create a pot of money that could be used to offset the state’s own Proposition 98 obligations to support education.  

In San Francisco, this meant the creation of a county Educational Revenue Augmentation Fund with an allocation of 25% of total property taxes, targeted to fund the state’s obligations to SFUSD and SF Community College District.  

Thus, the 35% of property taxes allocated to all education in San Francisco at the time of Proposition 13 became available for education again.  But the majority of it — the 25% ERAF fund — is only available to the extent that the state’s school and community college funding formulas call for it.  If they do not, those property tax dollars are redistributed to the City and County of San Francisco for other civic uses.

This is why San Francisco's controller recently announced that $400 million of “excess” educational revenue was being handed to the mayor to spend, under state law.