Saturday, December 17, 2011

JERRY BROWN’S CAGILY WORDED INITIATIVE: Only part of $7 billion in new taxes for education

By John Fensterwald - Educated Guess |

Posted on 12/15/11 • 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.

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 - above) 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.

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