A lot hangs on Prop 98 ruling

The onus was on the attorney for education groups suing the state: convince a skeptical Superior Court judge that the governor and Legislature violated voters’ will and the minimum school funding requirement under Proposition 98 by diverting billions in tax revenue from the General Fund last year.

“There will be no such thing as a minimum guarantee if the state can manipulate it for political purposes,” attorney Deborah Caplan told San Francisco County Superior Court Judge Harold Kahn on Wednesday.

Judge Kahn issued this one paragraph preliminary ruling on Tuesday then entertained 90 minutes of testimony on Wednesday.

Judge Kahn issued this one-paragraph preliminary ruling on Tuesday then entertained 90 minutes of testimony on Wednesday. Click to read.

In a one-paragraph preliminary ruling the day before, Kahn wrote that nothing in the wording of Proposition 98 precluded the Legislature from shifting $5 billion in sales tax and vehicle license fee revenue to a separate account reimbursing counties for taking on some state responsibilities – even though the move shorted K-12 schools and community colleges about $2 billion. That would have been their share under Prop 98, had the $5 billion remained in the General Fund.

But Kahn did give Caplan the bulk of a 90-minute hearing, extending through the lunch hour Wednesday, to make her case, and, notwithstanding his vigorous questioning, left open the possibility that she may have changed his mind. Kahn is expected to issue his final ruling within 30 days.

The case, brought by the California School Boards Association, Association of California School Administrators, and three school districts, has significant potential implications – immediate and long-term – for Prop 98, the initiative that voters passed in 1988 requiring that roughly 40 percent of the General Fund go toward schools and community colleges. With a victory, the governor and Legislature could create special funds at will to ignore voters’ stated priorities by reducing the General Fund and guarantee for schools. And Brown could use a win in this case to support his call for $5 billion in cuts to K-12 schools and community colleges if his proposed tax initiative fails in November. In that case, Brown is proposing a different manipulation: shifting $2.4 billion in school construction bond payments from the non-Prop 98 portion of the General Fund into Prop 98 – essentially a school funding cut.

Obligation to suspend or ‘rebench’

The plaintiffs don’t dispute the governor’s and Legislature’s ability to fund schools less than the constitutional guarantee. But Prop 98 requires a two-thirds vote to do so and prescribes how the money owed to schools will be paid back.*  In this case, the Legislature simply ignored the constitutional obligation to suspend Prop 98 (Republicans, jamming Democrats, made it clear they wouldn’t vote for suspension).

The plaintiffs also don’t deny that the governor and Legislature can shift money out of the General Fund or create special accounts. But ever since the passage of Prop 98, the Legislature has recalibrated the General Fund – “rebenching” in Prop 98 lingo – to make sure that Prop 98 wasn’t affected. This was the first time that reconfiguring wasn’t done, Caplan said.

The state’s position, which Kahn adopted in his ruling, was that rebenching is not in the language of Prop 98 and was not mentioned in the initiative’s ballot literature. If the Legislature has adopted rebenching by statute, it can undo it by statute if it chooses.

“Voters could have applied Proposition 98 to all revenues in the state, but they said only the General Fund,” Deputy State Attorney General Daniel Powell told the court. Shifting sales tax revenue to the counties for realignment of services was a valid purpose, not a manipulation, he said.

As Kahn asked Caplan, “If the voters or drafters of 98 wished to avoid evasions or manipulations of the General Fund, couldn’t they have put in language to state that? There is no such language there.”

But Caplan said what voters wanted was clear from the language of Prop 98 and the ballot arguments. Voters were promised that Prop 98 would take the politics out of financing decisions; the term minimum funding guarantee itself  “is inconsistent with allowing the state to manipulate it at will.” Otherwise, there would be “no integrity” to the initiative, she said.

Furthermore, the Legislature demonstrated that it understood Prop 98′s intent in adopting rebenching as implementation legislation soon after voters passed the initiative. “The state has rebenched many times over the years and honored the principle repeatedly, sometimes to the state’s benefit,” Caplan said, but also to protect education funding levels.

Abe Hajela, an attorney with School Innovations & Advocacy who has been part of the plantiffs’ team, told me that it is unreasonable to expect voters to anticipate all efforts to undermine an initiative, then write them into the Constitution. That’s the purpose of  implementation legislation.

The sales tax diversion was part of a deal that Brown cut with the California Teachers Association to pass the budget last year. But the statutory wording reflected CTA’s and legislators’ ambivalence. It said that passage of a tax initiative by November 2012 would make the sales tax shift to counties permanent but that schools would be made whole with the additional revenue. If the initiative failed, schools would be paid back what was diverted over four years.

But that was then. Brown is now reneging on that promise and is proposing to cut K-12 and community colleges further if the tax proposal fails. That’s all the more reason, the ed groups argue, that the constitutional guarantee must be protected.

* Update: It would be more accurate for me to say that the law prescribes how funding levels will  eventually be restored if the Legislature suspends Prop 98. The dollars lost in a suspended year are not paid back. For the Legislative Analyst’s Prop 98 primer explaining this, go here.

This entry was posted in Jerry Brown, State Budget, Taxes on by .

About John Fensterwald - Educated Guess

John Fensterwald, a journalist at the Silicon Valley Education Foundation, edits and co-writes "Thoughts on Public Education in California" (www.TOPed.org), one of the leading sources of California education policy reporting and opinion, which he founded in 2009. For 11 years before that, John wrote editorials for the Mercury News in San Jose, with a focus on education. He worked as a reporter, news editor and opinion editor for three newspapers in New Hampshire for two decades before receiving a Knight Fellowship at Stanford University in 1997 and heading West shortly thereafter. His wife is an elementary school teacher and his daughter attends the University California at Davis.

11 thoughts on “A lot hangs on Prop 98 ruling

  1. Navigio

    I don’t understand our state. Why do we even have a constitution? It can be changed willy-nilly and then simply ignored. Of course the text isn’t explocit in prop 98 that these contortions are not allowed but does this law not have any spirit?  It is not a coincidence that Molly’s effort is designed to bypass the entire thing. For anyone who wonders why, this story (and related ones on this site) should make it crystal clear why.
    That it has come to this is sad and embarrassing but somehow not surprising in retrospect. Choose your side then become a demagogue seems to be how we approach policy making. The problem is that doesn’t make good policy.

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  4. Deb McCurdy

    Give the governor a license to defund education and guess what will happen?   Now he says his tax initiative is intended to mainly help schools, but with this ruling, his previous cuts and lowered definition of “minimum funding” can be permanent —  actually keep getting lowered.
    The “Our Children, Our Future” tax initiative amends the penal code to make it a felony to misuse, misdirect or misappropriate the funds collected for education.  Apparently this is what we need.

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