Push for deferral reform
In the event they reappear instead of disappear
Given a choice between school funding cut and funding delayed, districts until now have preferred late payments, known as deferrals. They now total about $10.4 billion or 30 percent of state funding for K-12 and community colleges. While bailing out the state short-term, they have created cash flow havoc for charter schools and for many of the state’s nearly 1,000 districts.
Many, but not all. Basic aid districts – those that fund their schools totally from their own property taxes – and those districts more dependent on property taxes than state dollars for their Proposition 98 funding have largely escaped the impact of deferrals. But those districts with small tax bases that rely on state revenues for most of their money have gotten hit disproportionately hard.* That’s because deferrals only affect the state revenue portion of a district’s total funding. And districts most affected tend to serve large numbers of poor children,
Districts with large percentages of low-income students tend to have the largest deferrals per student. Click to enlarge. (Source: Stephen Rhoads)
according to Stephen Rhoads, a policy consultant for school districts who is working with State Sen. Gloria Negrete McLeod, a Democrat from San Bernardino and Los Angeles counties, on the issue.
Negrete McLeod is sponsoring SB 1491, the Fairness in Education Deferral Funding Act. For future deferrals, it would require that the state pay the interest on the money that districts and charter schools have to borrow because of the deferral. And it would spread the cost of the deferral equally among districts on a per-student basis, so districts funded largely by property taxes would share the pain. Districts serving mostly low-income students would get an extra break.
That’s fine and good, you might say, but isn’t Gov. Jerry Brown promising to wipe out K-14 deferrals over the next four years, if his temporary tax initiative, which would raise the sales tax and income tax on the wealthy, passes? Yes, Brown’s first priority for the extra money would be to pay down the state’s “wall of debt,” starting with eliminating $2.4 billion of the late payments to school districts and community colleges, next year.
But if the tax initiative fails (the latest Public Policy Institute of California poll shows it favored by just over 50 percent of voters), Brown is proposing to cut Proposition 98 funding by $4.8 billion or about $450 per student. If he’s serious, then once again districts may be faced with a familiar choice: a cut or a deferral, in which districts budget the spending but don’t receive the money from the state until the next fiscal year, borrowing from the outside market if they can’t borrow internally. If that happens, then Negrete McLeod’s bill would kick in.
Those districts with small property tax bases, relying more on state revenue to fund schools, get hit hardest by deferrals. Click to enlarge. (Source: Stephen Rhoads)
In a comparison of four districts, Rhoads illustrates the disparate effects that deferrals have had on poor districts. Take San Bernardino Unified (one of Rhoads’ clients), where 87 percent of students’ family incomes qualify for free or reduced lunches, and Capistrano Unified, where only 20 percent do; both serve 51,000 students. Because of Capistrano’s strong property tax base, it relies on the state for only $386 per student of its revenue limit, with $174 per student of that deferred. San Bernardino gets $4,783 per student from state revenue, with $2,149 deferred – a huge burden.
Although SB 1491 would apply only to future deferrals, Rhoads created worksheets to illustrate the impact had the bill been in effect today, for $8.6 billion of revenue-limit deferrals. By spreading deferrals uniformly, per student, among all districts, then giving added help to low-income districts, San Bernardino Unified would have seen the amount of money deferred go from $110 million to $72 million or from $2,149 per student to $1,401. Capistrano’s deferrals would have increased from $174 per student to $1,327, which would have been more than it gets in state revenue – and probably grist for litigation. Fresno Unified would have seen $143 million in deferrals drop by $43 million or $612 per student.
There have also been $900 million in deferrals in funding of categorical programs.
* A school district’s allotment of unrestricted dollars – its revenue limit – is funded by a combination of property taxes and state revenue. Because of Proposition 13 restrictions on increasing property taxes, state revenues now comprise about two-thirds of Proposition 98 funding, but the proportion varies from district to district.
So in other word the state will have figured out yet another way to borrow from local property taxes, right? It’s interesting that the side effect of running school funding through Sacramento in the name of equity has just given them something else to steal from. It’s almost comical that the ’solution’ is to make them steal equitably.
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Isn’t it time to reform Prop. 13 and all of its loopholes? I was amazed when I found out the manner in which Prop 13 benefits could be extended to the next generation. Those benefits are rarely mentioned, but continue to affect property tax revenues, thereby placing a disproportionate burden on some residents, while protecting property in families that already benefit from the Prop’s protections. I would be curious to know if anyone follows the cost to the State of second generation benefits. For example, (in brief) moving a Prop 13 property into a next generation “shareholder” situation prior to the death of the initial owner is a method of avoiding a reevaluation of the property at probate and the calculation of property taxes at the current level. This is just one method! I have been paying close attention to the Prop 13 taxation levels on vast properties in my more rural, low tax base, community. It is astounding how many people are paying a tiny fraction on their properties, yet they have significant income on the income from the land that their offspring will inherit – and if already seen a lawyer, may continue with low taxation! These same people voted could not have worked harder to stop a local school bond issue!
Point is: we need some serious long-term overhauls of the situation that got California into this inequitable mess.
I agree with Navigio!
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Property taxes indirectly fund K-14 education by lowering the amount that State ends up school districts. We could immediately increase property taxes collection by 10% and K-14 education would not necessarily see one additional penny in additional funding. The Think Long group has evaluated California taxes and proposed looking at the taxing of services. The California economy has changed significantily in the last 50 years and taxing services would broaden the base of taxes collected and based on current Prop 98 legislation would increase K-14 funding.
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Sue, probably the bigger problem than Prop 13 on personal residences is the fact that corporations never die, and that you can sell the corporation bit by bit instead of selling the land. Thus, for example, a new supermarket faces property taxes perhaps as much as 10 times higher than an old supermarket, even though they use the same level of government services and provide the same benefits to the community.
I can appreciate the stability in property taxes created by Prop 13, especially for residences, where in 1977, the actions of your neighbors were sending your housing cost soaring. (I say that even though my immediate neighbor pays 1/10 of what I do for 3 times as much land… and still grumbles about how much taxes he has to pay.) But, on the corporate side, it increases the barriers to entry for new enterprises and increases profit for long time entities, even ones that have undergone wholesale ownership changes.
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The Molly Munger/PTA initiative, “Our Children, Our Future”, is the ONLY one that funnels money directly to school sites and mandates parent and community input re how the money should be spent. Local control is the only way to go. Any initiative that gets money to the schools directly and avoids the black hole that is Sacramento gets my vote. PTA lobbying for our kids - for free — for 115 years.
Today, our state ranks 47th nationally in what we invest to educate each student. We have the largest class sizes in America. Over the last three years, more than $20 billion has been cut from California schools and over 40,000 educators have been laid off. We are shortchanging our early childhood development programs, which are some of the best educational investments we can make. Our underfunded public preschool programs serve only 40 percent of eligible 3 and 4 year olds, and only five percent of very low-income infants and toddlers have access to early childhood programs.
“Our Children, Our Future” asks Californians to join together to invest in our children and our schools because we all share in the benefits of better schools and a better-educated workforce. Our Children, Our Future will also reduce the cost of education bonds to help end the state deficit and protect our children and schools from further budget cuts.
The measure will raise $10 to $11 billion annually in new revenue through a sliding scale income tax increase that varies with taxpayers’ ability to pay. For couples, the increases range from 4/10ths of 1% on incomes after all deductions under $35,000 to 2.2% for couples with income after all deductions over $5 million. Couples would pay nothing on the first $15,000 of their income after all deductions, and existing tax credits will offset increases for most couples with income after all deductions of $40,000 or less. A couple earning $75,000 in income after all deductions would pay an additional $428 each year, while a couple earning $1.5 million after all deductions would pay $27,266 more.
The money will be placed in a separate trust fund that can only be spent as authorized by the provisions of the Act. The Governor and Legislature are prohibited from using the money. It cannot be used to increase current teacher salaries, but can be used to hire additional teachers, i.e., P.E. and staff, i.e., school nurses and to support programs that have been lost, i.e., the arts.
No more than 1% of money raised by the The Molly Munger PTA “Our Children, Our Future” initiative will go towards administrative costs – mandated. The initiative will raise $10 billion for schools per year for twelve years. Every child in the state will benefit. The money goes into a trust and does not pass through Sacramento. Parent, teacher, community input re how money will be spent at each school site is mandated as well. At this point in time, CA would need to spend an additional $60,000 a year, per classroom, just to catch up to the national average — that is a fact. CA has the highest ratios of students to teachers, students to counselors, students to administrator in the country — that is a fact. We are shortchanging all of our kids and have been for many years.
PTA, the largest volunteer organization lobbying for children, supports “Our Children, Our Future”. PTA has been in the trenches advocating for kids — for free — for 115 years – my vote goes with them. http://www.ourchildrenourfuture2012.com/
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el: You’ve hit on a good issue. The burden of the property tax has shifted to residential property owners since the enactment of Prop 13, leading to calls for a split tax rate, differentiating between commercial and residential owners. But Mike also has a good point: Taxing services would correct another imbalance, in the way sales taxes are collected, and potentially bring in more revenue for Prop 98.
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Deb, would the school site council be the school level entity in charge of deciding how the money would be spent? Also, what prohibits the gov from cutting existing Ed funding by the same amount? (especially if this is what causes the gov’s initiative to fail)?
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I will certainly vote for the PTA initiative if it’s on the ballot. My only objection is that the restrictions make it into another categorical, and I would prefer to give more local control by making it general fund money. Districts who weathered the storm by cutting salaries and administration to unsustainable levels instead of by cutting classroom teachers don’t fit into the expectations of the initiative premise.
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el, I would also like to see it on the ballot. I believe the initiative is just now setting up ‘offices’ to try to raise signatures. Keep your eye out for them and spread the word. Having it on the ballot is important regardless, imho.
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Whatever one thinks of adjusting prop 13 details or taxing services, at least they are somewhat reasonable ideas of trying to move forward. Molly Munger’s idea (and other similar) is a pure idiocy — it makes California’s economic climate an even worse one than it already is. And it uses class warfare ideology to promote it, to boot.
Recent Franchise Tax Board data shows that California lost about 1/3 of its “half-millionaires” (146K to 99K earning $500,000 and above) between 2007 and 2009. While some recovery happened since 2009, not as much as one may imagine and California continues to bleed millionaires to Nevada and other states. Even a thousand newly-minted Facebook millionaires will not fix this problem, certainly not long term. Not only will the revenues turn to be smaller than expected, relying on a tiny sliver of affluent taxpayers will just increase their volatility, the bane of our educational spending.
To achieve the numbers and a reasonable measure of stability the taxation will need to reach much lower, to those not-quite-millionaire “millionaires.” The AMT started in 1970 to catch only those “155 household [that] … have not paid a dime in federal taxes.” Forty years later it hits tens of millions with incomes well below $100K.
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