Tuesday, February 28, 2012

THREE CA EDUCATION REVENUE INITIATIVES FOR NOVEMBER, 2012? A Comparison, Because Voters Will Probably Only Support One


by Cynthia Liu, K12NewsNework.com |  http://bit.ly/zI1zWt 

February 28, 2012  ::  I recently had the opportunity to hear Molly Munger describe in detail to the California PTA how her proposed ballot initiative, Our Children, Our Future, would produce revenue to pay for K-12 public education.

Governor Brown‘s Schools and Local Public Safety Act ballot initiative proposal has also been public for some time, as has the Courage Campaign‘s proposed ballot initiative (pdf). All three are in the process of collecting signatures to be certified by the California Secretary of State to appear on the November 6, 2012 ballot.

With the process still fluid enough to influence, yet with much at stake and a great deal of political brinksmanship and back channel horse-trading still to take place, I’d like to open up the discussion of the merits of the three possible initiatives now because I feel we Californians are being asked to thread the needle. No one initiative seems to contain the best way of funding public schools and addressing a budget deficit left over from the Schwarzenegger administration of about $9.2 billion. Instead, each initiative has its strengths and weaknesses. If all three make it to the ballot, there’ll be chaos, and there are mutual exclusivity clauses that complicate voting for all three.

Moreover, there are currently bills under consideration in the California Assembly and Senate that would greatly impact public education funding if passed, and ought to be considered as they may be able to become law by the end of the legislative session on June 30, 2012, which is also when the state’s budget for 2012-2013 must pass.

Threading the needle is risky; to some extent when the legislature and Governor must work together, some of that patchwork quality cannot be avoided. But when it comes to the ballot initiatives, for the good of the K-12 kids and higher education students the ballot initiatives aim to serve, I feel the three competing ballot initiatives need to sort out the best features of each, merge, and go forward as one ballot initiative everyone can get behind. Polls show that voters really only have the time and attention to vote for one education initiative.

For we voters and supporters of public education, we’ll have to be strategic and have a strong sense of timing, opportunity, and advocacy. How best to focus and organize voter energy is what I want to talk about here.

To launch that conversation, I’ve created a chart from various tables, narrative assessments, and Legislative Analyst Office reports. Mind you, I’m not an expert on education finance. I’m simply a concerned parent with a child in public schools and a very large stake in seeing our state’s public education system funded properly. Like many parents, I’m more well-informed than some, less informed than others. So I present the following for discussion. I look forward to your comments, corrections/additions, or blog posts in conversation with this one.

24 Questions About Ballot Initiatives To Fund California Education


Notes on the 24 Questions:

green = worthwhile

yellow = warning flag, needs more clarification or discussion

1. What does the initiative amend?

Do we need to amend the CA Constitution with Governor Brown’s initiative? This means local government carries the burden for public safety, mental health, and other services FOREVER.

2. Formula for raising revenue?

From what I observe, both the Brown’s sales tax on individuals and Munger’s “sliding scale” income tax are regressive. The middle class is wary of additional taxes; the appetite for taxing the top 5% of earners is much greater. Do note, however, that according to the California Budget Project’s 3-way comparison, the sales tax would also be applied to businesses, so there’s something to consider there.

However, I have a big question about the Courage Campaign’s Millionaire’s Tax: does it pass the Mark Zuckerberg Facebook gazillionaire test? Here’s what I mean by that. Silicon Valley entrepreneurs typically pay themselves salaries of well under $250,000 per year, and take all their wealth as stock options, which are usually taxed at 15% or under as capital gains (the Mitt Romney tax plan). So how does the Courage Campaign’s plan to capture an additional 3% on $1,000,000 of taxable income or 5% on taxable income of $2,000,000 or more catch Facebook gazillionaire Mark Zuckerberg in its net? A lot hinges on the definition of ‘taxable income.’ I’m not sure Zuckerberg’s modest $250,000 salary (hypothetical, you get the idea), minus deductions, would suffer much of a tax hit at all under the Courage Campaign’s plan. And Zuckerberg’s gazillions would be subject to capital gains taxes, leaving the state of California to collect only on the relatively paltry $250,000.

Jerry Brown’s stepped tax of 1% levied on earners between $500,000-$600,000 sweeps Silicon Valley couples who pay themselves $250,000 each into the pool of taxpayers paying for public education, and further secures revenue at 1.5% on those who have taxable income of $600,000 and up, and 2% on taxable income of $1,000,000 and over. This seems the best way to ensure that state income tax actually impacts those who make salaries in the Silicon Valley upper management range who also take some of their wealth in stock.

View Brown’s proposal in light of Munger’s highest range of percentages on top earners (which she puts at 2.2% on $10,000,000 taxable income earners or above; 2% on taxable income of $1,500,,000 and above). Brown’s addition to the state income tax is more progressive and more craftily designed.

3. Legislative Analyst’s Office analysis of estimated revenue?

The LAO notes that Brown’s initiative would probably bring in less than he calculates. (See CBP 3-way assessment; also the Legislative Analyst’s Office report.)

4. What taxes increase?

As mentioned earlier, everything hangs on the definition of ‘taxable income.’ The LAO notes, with regard to the Courage Campaign’s Millionaire’s Tax, that there may be a discrepancy between income from stock or dividends versus taxable income:

Most of the income reported by California’s upper-income filers is related in some way to their capital investments, rather than wages and salary- type income. While upper-income filers’ wage and salary income is volatile to some extent (due to the cyclical nature of bonuses, among other things), their capital income is highly volatile from one year to the next.

5. Duration?

Munger’s 12 year duration of the tax increases appeals to me, as it’s long enough to be sustained beyond several electoral cycles, yet not so long that we can’t revisit and tinker if it isn’t working optimally. Brown’s 4-year sales tax and 5-year income tax and amendment of  the state constitution strikes me as too ephemeral on the revenue-generation side, and too permanent on the allocation of burdens to local government. Likewise a permanent raise in millionaire’s taxes could be appealing to put the state on a firmer financial footing for the long-term, but not if Californians who make their wealth from stock options slip through the net forever also.

6. Where does the money go? General Fund?

These are all the same in the establishment of a special purpose trust separate from the General Fund and two of them say the Legislature cannot count these special purpose funds toward meeting the Prop 98 minimum guarantee of education funding (as specified in the state constitution).

7. Is the Legislature able to spend or borrow money from the special account?

These are all the same in disallowing the Legislature from borrowing or otherwise moving around money from the special purpose trust to the general fund.

8. Uses of money raised? – 9.  Effect on higher ed?

The Courage Campaign’s Millionaire’s Tax directs less money to K-12 directly, and funds infrastructure such as roads and first responders. If by its own estimate the taxes bring in $6-9.5 billion in the first year, then only $1.5 – $2.0 billion per year would go to K-12 education and the remaining 40% of the money set aside for education, $2.4 – $3.84 billion would go to UCs, CSUs, and CCs for direct instruction. What’s good is that there’s an attempt to address everyone’s needs, and certainly California’s higher ed has sustained deep cuts over the past four years as well.

However, K-12 was cut $18 billion over 4 years (about $4.5 billion per year), while CCs and CSUs/UCs were cut about $750 million per year. Under the Courage Campaign’s Millionaire’s Tax, higher ed would receive about $2.4 billion a year. These proportions seem off — K-12 spending comprises about 28.6% of the state budget and higher ed about 7.1%. This has nothing to do with how much each are valued, but is instead a recognition that the K-12 population of public schoolchildren mandated by law to attend school is 6.3 million, whereas there are approximately 2.3 million community college, Cal State, and UC students who opted to attend in 2010, the last countable year (2.8 million in 2008).

I have yet to reconcile this to the promise to return K-12 and higher ed spending to 2008 levels, which is part of the language of this ballot initiative, and make this actually line up with the anticipated revenue figures.

10. Effect on state deficit?

Currently, debt carried over from the Schwarzenegger administration totals about $9.2 billion (Department of Finance estimates) to $13 billlion (Legislative Analyst’s Office estimates). Only Brown’s addresses systemic underfunding and the deficit it has created.

11. What else does the initiative do?

Brown’s initiative permanently shifts revenue of about $5.5 billion to local governments so they can implement state programs. Are local governments equipped to handle criminal justice duties that the state normally handles, such as parole and rehabilitation of adult offenders? I need more information on the types of programs local governments will be expected to take on.

What Brown’s initiative also does is account for the $9.2 billion deficit (the “wall of debt” that he confusingly referred to in the spring of 2011 and still has the state on a less than robust footing now). His budget accounts for the deferrals and other accounting tricks that previous administrations have used to kick over deficits from one fiscal year to the next. It tries to pay this down, and this is why if no revenue measure is passed, we’ll continue to have painful cuts from all the services we care about and rely on. However, and this is the sticky part, Brown’s initiative would allow the money collected under the initiative to be counted as part of the Prop 98 minimum.

Munger’s proposal, according to her argument, promises to take a portion of the first four years of revenue and pay down education bond servicing, thus freeing up about $3.7 billion to go back into the General Fund. So this is a welcome development to acknowledge that there are other areas that have suffered cuts that the General Fund pays for and would further protect Prop 98 minimums from sinking further.

Both Munger’s and the Courage Campaign’s proposals would keep money collected for education in a special trust above and beyond Prop 98 minimums. This is a key difference from Brown’s initiative and because Prop 98 is so tricky, I feel this needs to be explained more carefully.

However we might want to, we can’t view education funding in a vacuum: funding for seniors, families who receive CalWorks assistance, parks, first responders, and all other programs are paid through the General Fund. (Remember the $9.2 – $13 billion a year in deficits we face at the current level of revenue collection?) The General Fund must also be adequately funded. If California voters succeed in passing either Munger’s or the Courage Campaign’s revenue proposals, we could STILL be $2 billion or more short of what we need for education, and subject to cuts. This excellent short post and accompanying radio show from KQED spells out why:

First, the notion of a deeper deficit. Budget experts explain it as follows: Brown’s proposal, which also codifies the 2011 budget’s realignment of state and local services, is the only way under current law that the existing budget pencils out. If his proposal doesn’t prevail, the 2011 budget reclassification of $5 billion in sales tax revenues crumbles — revenues that the budget removed from the constitutional formulas that drive K-14 school funding.

Still following? Hope so.

And if those sales tax revenues revert to their normal general fund placement — thus, counting towards establishing the Proposition 98 funding level — schools will be owed another $2 billion. And, given the state isn’t exactly sitting on surplus cash, that could mean $2 billion in new cuts… even though voters, in ratifying either of the alternate initiatives, would have assumed that new taxes mean no new budget cuts.

(I told you Prop 98 was tricky. It’s said only 3 people in the state really understand how it works.)

See also #13 below for details. The upshot: we were drastically underfunded for years and we’d need a raft of revenue measures to bring us up to par. Passing any one of the education-focused ballot initiatives isn’t a silver bullet, but at minimum we need to pass at least one revenue measure that funds public education, period. This is where the burden must shift from individuals to closing corporate loopholes.

12. Effect on/amounts raised for K-12?

In the first year of each hypothetical year of the respective initiatives, the Munger plan would deliver about $6 billion for K-12, the Brown plan about $4.3 – $6.1 billion for K-12, and the Courage Campaign plan about $1.5 – $1.9 billion for K-12.

13. How is money allocated, K-12?

The Munger initiative is very specific about the kinds of categories of education funding the monies can be used for. 18% can be used specifically for low-income students. This is important because there’s no other accommodation in her plan for social service cuts (such as to CalWorks, the cash assistance provided to families with minor children living below the poverty line; about 77% of low-income children in California are helped by this program).

As the California Budget Project has pointed out, when children living in poverty have CalWorks funding cut AND they experience school funding cuts, the most vulnerable children in our state experience twice the deprivation. When the General Fund has been chronically underfunded as it has for the past decade or more, we end up with a situation where we must cut $940 million (more than higher ed was cut in a single year, and almost one-fourth of what K-12 was cut in a single year) that helps California’s most indigent families. So Munger’s school-site money for ensuring that there are longer days, after-school enrichment programs or tutoring is good, but it’s not the same as restoring funding to a cash assistance program that allows low-income parents to buy their children clothes, food, pay the rent, or other subsistence expenses that can’t be supplied through or met by the school.

14. What K-12 schools are eligible to receive funds?

Public schools eligible to receive funds — all are about the same in defining public schools, including special ed, charters, neighborhood schools, and county offices of education.

15. Who decides how the money is spent?

Brown and Munger provide for local school boards to decide at public meetings how money from this special trust will be spent. This is HUGELY important and must remain in the final ballot initiative.

The Courage Campaign centralizes fiscal accountability with the State Controller’s office but otherwise doesn’t make any provision for local oversight. This is a big mistake.

16. How does oversight on spending funds raised by the initiative work? I.e., site budgets, public explanation of improvement of student outcomes, independent audits?

Munger’s plan is clearly most well-thought among the three and provides for mandatory parental input, school board-generated budgets and a public reporting process, plus subjecting districts to independent audits. This MUST also remain in the final version of the ballot initiative. Brown’s version is too lax, and the Courage Campaign’s too distant from where the money will actually be spent (shows a lack of knowledge of local school governance and the importance of community buy-in).

17. Penalties for misuse of funds?

Here I like Munger’s and Courage Campaign’s approaches. Munger changes the penal code to make it a felony to misappropriate funds. The Courage Campaign specifically provides for a clawback option for misused funds and puts the misappropriated money back into the general pot for redistribution. I’d like to see more of this in the final ballot initiative.

18. Permissible areas of spending, K-12?

Again, Munger’s proposed ballot initiative is very specific about what special trust funds can be used for. I was very pleased to see that money should be used to improve student academic performance through enriching and broadening the curriculum, putting more teachers with students and increasing instructional time, putting resources toward the law recently passed (which K12NN supported) that incorporates P21 principles of creativity, collaboration, critical thinking, deeper engagement, STEAM, financial and other 21st century literacies, and hiring support staff like nurses, librarians, special ed teachers, English Language Learner specialists — in short, everything BUT testing. I feel this must be articulated very carefully in whatever ballot initiative is the final one, otherwise education profiteers will seize upon this new special trust money and try to use it to fund unproven online learning or testing or some other aspect of education that is a profit center for them, but not especially beneficial for children.

In fact, this is a central weakness of both Brown’s and the Courage Campaign’s ballot initiatives. By not specifying some of the specific ways special education trust money can be spent, they leave the door wide open to testing/textbook/ed tech lobbyists to try to divert as much funding as possible to their interests instead of broadening the curriculum and reintroducing the arts, music, history, and all the other parts of the curriculum that have been narrowed and eliminated due to No Child Left Behind’s emphasis on testing.

19. Impermissible areas of spending?

No administrative bloat allowed by any of the three initiatives, but the Courage Campaign goes several steps further by specifying that the special trust fund should not enable vice provost/provost bloat or be spent on inflating regents’ or chancellor’s salaries. A good proviso.

20. Effect on Early Childhood Education and child care?

There must be money set aside, as Munger’s does, for Early Childhood Education (ECE) and care. Study after study shows the benefits of 0-5 early childhood stimulation, proper nutrition, and a rich and stimulating preschool experience. And we know this pays off handsomely throughout the child’s lifetime. Brown’s proposal is silent on this; the Courage Campaign only goes so far as to say that levels will be restored as of January, 2008. But what if even those levels of spending were too low?

21. Effect on Prop 98 minimum funding guarantee?

Munger and Courage Campaign specify that special trust funds are above and beyond Prop 98 guarantees. This is preferable to Brown’s, which allows special trust funds to be swept into the Prop 98 minimum. That minimum can be suspended (and has, upon occasion), and is susceptible to trickery that makes the floor act like a ceiling. General funds should still be appropriated to fund the Prop 98 minimum instead of letting special trust funds fill the gap for basics.

22. Small class sizes? – 23. Reintroduction of art, music, PE, history, etc, classes?

Small class sizes and the return of PE, history, music, arts, and other classes would be funded more widely by the Munger initiative. Classes cut from the day due to test prep and teaching to the test would be replaced with arts, sciences, music and other classes would replaced only at districts where visionary administrators see fit to make these a priority under the Brown and Courage Campaign plans.

However, if Assemblymember Julia Brownley’s AB 18 becomes law, it would tweak the state funding formula for public education to make it more simple, easily understood, and equitable. This would also allow for smaller class sizes. We should support AB18′s passage provided the “equitably weighted student formula” is indeed equitable. A key difference between Brownley’s AB18 as it currently stands is that it would count funding that follows the student more than once if the student fell into categories that receive specific funding. So an English Language Learner who is also a special needs child would be counted and funded twice, whereas under Brown’s version of weighted student funding, the child would only be funded once.

In some locales, a parcel tax will also allow for small class sizes. But this is limited only to jurisdictions to which the parcel tax applies.

24. If both/all pass?

If Munger’s initiative gets the most votes, the alignment parts of Brown’s initiative will take effect but not his K-12 proposals.

If Brown’s gets the most votes, then it cancels out Munger’s.

If the Courage Campaign wins and is challenged, then remaining parts are still valid and lawful. If it’s approved by voters, but superseded by another measure that is unlawful, then the Courage Campaign’s will be self-executing and lawful.

Clearly AB18, which would clarify and simplify the way school funding is handled by the state of California, is sorely needed. Will the legislature be able to push this through by the end of this legislative session, or will consideration get moved even deeper into 2012?

Assembly Speaker Perez has launched the Middle Class College Scholarship Act, which would close a corporate loophole to fund a 2/3 reduction in college costs. But is this just showboating in an election year, or are California legislators really intent on passing this?

If both bills pass and are signed into law, it would ease the burden on the November 2012 ballot initiative(s) meant to fund education in California. Perhaps even by then, the three parties will have sorted out the strengths of each into one initiative all Californians can get behind. Will this happen?

It depends on you and me, and all California voters, to inform ourselves, debate, and to ASK our legislators to take action. Don’t ask us to thread the needle — sort it out and make the right path forward open to an up-or-down vote.

So, what’s the best way forward?

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