Brown’s cagily worded initiative

Only part of $7 billion for education
By

Californians like the shorthand explanation of the tax increase that Gov. Jerry Brown is proposing for November. Seventy percent in a recent poll said they’d favor the initiative if the money would go to K-12 schools.

But this would be true only in a narrow, technical sense. Schools will likely get billions of dollars less.

That’s because, contrary to what he implies, Brown is not promising to give all $7 billion to schools and community  colleges from increasing the sales tax by 1/2 cent and income taxes on the wealthy. He’s promising only to increase Proposition 98 funding for education by raising state revenues by $7 billion. There’s a huge distinction, like the difference between your  gross income and your net income, after taxes and your mortgage payments are deducted.

As a rule of thumb, Proposition 98 requires that between 40 and 50 cents of every dollar of a tax increase will go toward K-12 schools and community colleges ­– or between $2.8 billion and $3.5 billion out of $7 billion. But the percentage will vary, potentially greatly, from year to year, depending on the intricacies of Proposition 98 mechanics. As of now, budget analysts aren’t sure which of three options, or “tests,” under Prop 98 will apply to setting next year’s education revenues. More on that in a moment.

And here’s something else about the initiative. Along with increasing taxes by $7 billion, Brown is asking voters to permanently move $5 billion out of the General Fund – primarily by shifting 1 percentage point of the state sales tax – to pay for public safety and child protection services that the state is transferring to cities and counties. The Legislature shifted that money this year, and by law, it would revert to the General Fund without voters approving Brown’s initiative. But the net result would be only $2 billion more for Proposition 98 purposes.

The combination of these two moves enables Brown to artfully assert that the initiative “guarantees that the new revenues be spent only on education” while also saying that “cities and counties are guaranteed ongoing funding for public safety programs such as local police and child protective services.”

No lock box for education funding

Furthermore, as a result of new state revenue, the initiative says, money will be “freed up to help balance the budget and prevent even more devastating cuts to services for seniors, working families, and small businesses.”

Something’s got to give. It would seem contradictory that revenues funneled into an Education Protection Account that Brown would create could also somehow fund programs for small businesses and seniors. Yet it’s possible because General Fund revenues are fungible; the $7 billion in new money dedicated to Proposition 98  can be used to make room for other programs.

As Bob Blattner of Blattner & Associates, an education consulting firm based in Sacramento, says, “As a safe box goes, Proposition 98 is not as reliable as your mattress.”

As the Legislature has shown, the so-called Prop 98 guarantee, the constitutional minimum for education funding, is only as reliable as lawmakers’ will – or what they think they can get away with. This year, the Legislature shifted part of the sales tax out of the General Fund, lowering the Prop 98 guarantee by $2 billion – in effect suspending the Prop 98 minimum without a two-thirds vote of the Legislature, as required. In the past several years, they have met the guarantee only through massive deferrals – delaying payments to schools by months or pushing them into the next fiscal year. They have played fast and loose in calculating money owed to schools and community colleges in bad revenue years, when state revenues are soft. That obligation is called the “maintenance factor.”

“The problem now is that there have been so many interpretations that no one can agree on the Prop 98 obligation. Now they (the Department of Finance) just put out a number – they can always say we interpreted it this way,” says Robert Miyashiro, vice president of the Sacramento-based education consulting firm School Services of California. He and Blattner are among of handful of Californians who can actually explain how Prop 98 works.

Bob Blattner prepared this explanation on how Prop 98's funding "tests" work. Click to enlarge.

Bob Blattner prepared this explanation on how Prop 98's funding "tests" work. Click to enlarge.

This is not to say that passage of Brown’s initiative – or better yet, a blend of it and other proposed initiatives that have been proposed – would not benefit K-12 schools and community colleges. Without the extra revenue for education and realigned local services, there will unquestionably be massive cuts to schools, higher education and children’s services.

The Legislative Analyst’s Office is predicting that schools will be funded next year under Prop 98’s Test 2 formula, raising spending by about 4 percent ­– the increase in the average per capita income or about $2 billion (see Blattner’s crib sheet for the three “tests” that determines Prop 98 funding). And the $7 billion in extra revenue could also obligate the Legislature to pay down some of the billions owed under the Maintenance Factor.

As Brown has said, persuading Californians to pass a tax increase will be difficult, especially next year. But in overstating the initiative’s impact on K-12 school funding, Brown may be hurting his own cause.

7 Comments

  1. Besides the projected $2 billion growth in Prop 98 monies do not forget what happened when the 2011/ 12 budget was passed.
    The 2011/12 budget they “borrowed” $2 billion from Prop 98 funds to pay for city/county realignment. They promised to pay it back in 2012. The California School Boards Association filed a lawsuit just to remind everyone that the borrowing was probably not legal. The “protectors” of Prop 98, the California Teachers Association cut a deal in the dark of the night for job protection with AB114. They looked the other way when Prop 98 monies were moved.

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  2. If that measure doesn’t pass, where would the 7 billion be cut from? Seems to me that part of the argument will certainly be about education cuts avoidance.

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  3. Massive deferrals……..What’s right about that?
    When, if ever, are the Citizens of this State going to stop electing these crooks?
     
    But then again, we get the government we deserve………We elect these idiots, why complain about the damage they do?
     
    Poor old Jerry…..Will the clouds ever lift?  Will he ever figure out that the State of California DOES NOT have a revenue problem…….We have a SPENDING PROBLEM…….The State Government cannot be all things to all people…….Protect the future of this State by ensuring adequate funding for education…….Cut Welfare benefits to the bone……If no one likes that, let them move to another State, I’m fine with that…..Cut the useless Legislature, make it a part-time thing, cut the hundreds of Boards and Comissions paid for by the State Taxpayers….and finally, cut out useless, job killing regulations…….
     
     

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  4. Repeal Proposition 98.  This could be the first step in fixing both the state budget malaise and funding for K-12 education.  In the current environment adding new taxes just adds complication to an already complex budget process.
    Think about it.  It would be refreshing to have honest debates about how much money will be spent on schools rather than the arguments about whether or not the conditions imposed by Proposition 98 have been met.
    We also should make certain that local property taxes (whether for schools or any other local agency) will not be counted as part of the state budget.

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  5. Look at the alternative – In his press conference on Tuesday, the Governor said that his 2012-13 budget proposal, which will be released next month, will contain billions more in cuts to the same programs, and will also contain a trigger for the next fiscal year.  Brown said he has to do that because he won’t know about the tax initiative results until November and the state can’t wait and do nothing between now and then.

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  6. @look – if im not mistaken, if the measure doesnt pass, the realignment funds get transferred back to the general fund, which would subject them to prop 98. Someone correct me if I’m wrong. That of course doesnt mean prop 98 might get suspended. In fact, maybe that move would make it more likely since I believe that amount is less than what the measure is requesting.

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  7. As soon as the Governor releases his 2012-13 budget, what this initiative is about will change from being about education spending to being about whatever the trigger cuts are. The question for education is how much of the $7 billion in trigger cuts would be from K-14 education. Without suspending Prop 98, school could only be $1 – $2 billion of those cuts depending on the specifics of the Prop 98 formula. Could the Legislature pass a Prop 98 suspension in order to allow the trigger cuts to be more about school funding?
    Would CTA back a proposal that depended on a suspension to make the initiative be about school funding instead of non-Prop 98 programs?
    Since suspension would transform the budget process from a majority vote process into a 2/3 vote environment, would the Reps go along with a plan that might improve the chances of an initiative passing?
    It seems that while this initiative is being sold as an education funding referendum, it would end up being much more about the non-education part of the budget.

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