Judge OKs Prop 98 shell game

More manipulations if November tax fails
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A Superior Court judge last week lopped a limb off Proposition 98. Fans of Monty Python might have been amused; school districts will not be.

The three-paragraph ruling by San Francisco Superior Court Judge Harold Kahn simply reaffirmed a tentative ruling he issued in March. Back then he ruled that nothing prevents the governor and Legislature from shifting money out of the General Fund, even if that in turn leads to less funding for K-12 schools and community colleges under Proposition 98, the law setting minimum funding for schools.

The loss is significant. As part of the 2011-12 state budget, Gov. Jerry Brown transferred about $5 billion in sales tax and vehicle license fee revenues to a special fund as part of his shifting of state safety and social services to counties and cities. Had the money stayed in the General Fund, roughly 40 percent, or $2.1 billion, would have gone to the Proposition 98 guarantee.

The California School Boards Association, the Association of California School Administrators, and three school districts sued, claiming that was an illegal diversion of money owed schools. Their attorneys argued that voters passed Proposition 98 in 1988 to prevent manipulation of minimum dollars owed schools. Legislators could suspend the minimum obligation with a two-thirds vote, while acknowledging that the money owed had to be restored over time. They didn’t do this. Or, if they still wanted to set up a special fund outside of the General Fund, they could pay a higher percentage to schools of a diminished General Fund. Lawmakers didn’t do this either.

Kahn didn’t put enough in writing to fathom his thinking, but during oral arguments in March he implied that if drafters of Prop 98 had wanted to prevent the siphoning of money through special funds, they would have put it into the initiative. Lawyers for the plaintiffs argued that the intent of voters was clear: a minimum funding level that shouldn’t be tampered with.

ACSA and the CSBA haven’t decided whether to appeal Kahn’s ruling. Superior Court decisions are not cited by other courts as precedent-setting decisions, so there’s always a gamble going to the Court of Appeals. Meanwhile, Brown plans further tampering with Prop 98 if his tax initiative fails in November. He is proposing to stuff $2.6 billion in school construction bond payments, which had been funded as part of the non-Prop-98 part of the General Fund, into Prop 98. In effect, that would create a cut in funding for schools.

Though the circumstances are different, Kahn’s ruling will encourage these types of manipulations.

11 Comments

  1. While acknowledging that Prop  98 is a Rube Goldberg of a law that I don’t profess to fully understand, it seems absurd that as we try to address the prominent budget deficit that for every dollar shoveled into that abysmal hole 40 cents must be scooped out for schools. Proposition 98 is like public pensions; they can only go one way and that is up no matter the financial facts.

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    • Ann: Prop 98 doesn’t just go up. When the General Fund declines, the Prop 98 obligation also falls.
      I didn’t get into the more complex details, but shoving a new obligation, in this case repayment of construction bonds, into Prop 98, sets off a complex calculation called “rebenching.” The Department of Finance goes back to 1986-87, when Prop 98 was created, to determine the proportion of the General Fund that school construction constituted at the time. In this case, it was a much smaller fraction than it is today because the state passed huge school construction bonds about a decade ago. It is this original proportion, equal to a couple hundred million dollars that Prop 98 must be increased if school construction bonds are going to be moved into Prop 98. The remaining $2.4 billion or so is not counted as part of the Prop 98 obligation and becomes, in effect, a programmatic cut that districts will feel. Whatever the original intent of rebenching, it’s become a tool to exploit the law.
      OK, Prop 98 experts, please correct me if I got that wrong.

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  2. They don’t him “Moonbeam” for nothing…….So, when Democrats stick other Democrats in the eye……..What’s the message here?
    When other people’s money runs out, it’s every man for himself?  Just what I’d expect from our Governor and the tax and spend bunch in Sacramento.
     
    Time for a change in direction…..

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  3. So “the intent of voters” in supporting Prop 98 was clear, despite the fact that it’s been said that only a few people in the state actually understand Prop 98, and even they can disagree. Prop 98 should be repealed. It’s not like the education lobby doesn’t wield enough political clout to protect its interests in the state. Prop 98 creates a level of budget complexity that removes the vast majority of citizens from being able to understand their state government’s spending.

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  4. What would be a big-enough down-side to appealing the decision?

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    • The case becomes moot if the tax initiative passes, because the governor will be complying with his promise to repay Prop 98 the money he diverted by moving the $5 billion to a special fund. But there is no harm in filing an appeal now and waiting to see what happens in November. The bigger worry is a loss in an appeals court with a ruling that will be cited in related cases in the future. So lawyers want to feel confident the facts in their case would support a precedent-setting win. I’ve heard lawyers argue both ways, that this was and wasn’t the case to sue over. I’m not an attorney (though I play one during arguments at home), but it struck me as a compelling case.
      It’s always a crap shoot when you go into Superior Court – whether the judge is willing to spend time and thought on the case and to stick his or her neck out on a ruling based on a constitutional claim. A three-paragraph ruling, only one of which dealt with the substance of the case, doesn’t tell you much about this judge’s logic.

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  5. “Or, if they still wanted to set up a special fund outside of the General Fund, they could pay a higher percentage to schools of a diminished General Fund. Lawmakers didn’t do this either.”

    What is the provision of p98 that does this?

    Anyway, we dont seem to do very well with ‘spirit of the law’ arguments anymore. The ‘intent’ of anti-education funders is pretty clear too, and they will find any opening they see to counter the goals of pro-education funders. This is essentially the modus operendi in education policy in CA over the past, at least 40 years. There is always a danger in being too specific in law. And there is a very good reason Munger’s initiative bypasses Sacramento altogether. Kids cant defend themselves. And even parents dont want to pay taxes.

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  6. This three paragraph ruling has sanctified manipulation of money the State had promised was the bare minimum of what was needed to educate our children. It boils down to less money for our students any way you look at it. If you rob from a child’s piggybank at least you should be adult enough to admit it.

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