Prop 30 And Prop 38: Dueling Plans To Save California's Schools
Proposition 30 is a plan to plug the state’s leaky budget with $6 billion per year by increasing income taxes on people earning more than $250,000 per year (and couples earning more than $500,000) for seven years and raising the sales tax one-quarter percent for four years. The income tax provision should be a political no-brainer—the majority of Californians don’t make $250,000 per year and certainly some who do support higher taxes to fund schools—but the sales tax and a general skepticism among voters about the long-term money management abilities and general priorities of Sacramento and local school boards has made 30’s passage far from a done deal. Even with the inevitable political baggage that comes with tying oneself to a plan to raise taxes, Gov. Brown remains much more popular than the state legislature.
Raising the sales tax to pay for schools is not a new idea for a high-profile Democratic legislator. Democratic National Convention keynote speaker and mayor of San Antonio Julian Castro is proposing his own increase to fund preschools in his city—but it is a tough sell, particularly in an economy that is still very much in a recovery period. The state sales tax sat at 8.25 percent—three-quarters percent of the tax proposed by 30—not even two years ago, and while 7.5 percent is on the high end for sales taxes in the United States, it is not uncompetitively so, and can be argued as necessary given the scale and scope of California’s government. Californians who have been doing a lot of their shopping through online outlets like Amazon.com might especially feel the impact, as they have just started collecting sales tax after years of tax-free sales.
California’s school funding saga requires a little historical background. In 1978, in what became kind of the symbol of the anti-tax movement that helped sweep Ronald Reagan into power, Californians voted for Proposition 13, which capped property tax at no greater than one percent of the cash value of the home, restricted annual increases at 2 percent, and only called for a reassessment upon sale or new construction. This proposition had wide-ranging effects on many areas of the state’s economy and politics, but in terms of education, it reduced property tax receipts available to fund public schools, thus placing even more of the onus on the state government.
As a response to what was becoming a structural problem with education funding, as the state grew and tax rates shrank, in 1988 California passed Proposition 98, which mandates a certain amount of the General Fund to be spent on education, with the exact proportion to be determined by three “tests”. Without getting into the math, the tests basically ensure that funding keeps pace with enrollment growth.
California’s General Fund, which has comprised about 80 percent of total state revenues over the past three years, is projected to spend $91 billion this fiscal year. Of this, $36 billion—40 percent—is dedicated to public education. As the General Fund requires on personal income taxes for more than half of its funding and sales taxes for another 20 to 30 percent, on average, it fluctuates widely with economic trends. The chart below shows Proposition 98 funding over the last seven budgets; property tax receipts have been fairly consistent, but the General Fund contribution was substantially affected by plummeting income tax receipts during the recession.
Proposition 30 undoubtedly would increase revenues for schools, but it taps the same resource responsible for most education funding—personal income taxes and sales taxes—with the same market cycle vulnerabilities. It addresses none of the concerns about who should bear the responsibility of paying for public schools and in what proportion; it just hopes that this current cash call is enough to plug the hole either permanently, or for long enough to address deeper structural problems.
California spends $9,375 per pupil as of the 2010 Census, putting it on the lower end of states, especially considering its high cost of living. It also has one of the highest state income tax and sales tax rates, meaning there is only so much more room to extract school funding out of these two sources. Proposition 30 may be effective in plugging the money hole long enough to work out a permanent solution, but it doesn’t open up new, creative ways to supplement school funding or change anything about how the additional funds are used, which is a valid criticism of the initiative.
Students will feel an immediate impact on their wallets if Proposition 30 fails. The California State University Board of Trustees approved a backup plan involving a 5 percent tuition hike at a meeting last Wednesday. This unfolding of events would be a literal passing of the buck from wealthy households to college students, something a Democratic governor would be loath to oversee, and the kind of consequence that may well lead many skeptics of Sacramento and school boards to hold their noses and vote Yes on 30.
Proposition 30, with its gubernatorial endorsement and high profile, is the most notable and likeliest to pass but not the only education funding initiative on the ballot. Civil rights attorney Molly Munger drafted her own plan, which California voters will have the opportunity to vote for in November as Proposition 38.
Proposition 38 increases the income tax for Californians earning over $17,346 per year (albeit minimally for low incomes) and sends most of the revenue directly to schools—but notably not public colleges and universities—with the rest used for debt service. This differs from 30, which directs its receipts toward the General Fund. Also, while 38’s income tax structure is obviously more regressive than 30’s, it does not include a sales tax.
Supporters of 38, such as the California State PTA, point to the fact that the state’s punching-bag legislature would not be allowed to get its hands on any of the new funds, as they would go straight to local schools. Opponents not only point to 38’s more broadly applied income tax, but the fact that it does not do anything about higher education and is likely to make the accounting even more complicated, operating outside the standard revenue disbursement infrastructure.
Proposition 38 is polling well behind Proposition 30 but has a viable, if unlikely, chance to pass. However, as it would be impossible for both to be enacted concurrently, only the measure receiving the highest number of votes will become law. If neither passes, schools will most likely have to cut days and public university students will have to cut the check. California voters have to make an unenviable choice between stretching their neighborhood schools thin and raising their own taxes. It will undoubtedly be a difficult one, and may well be a very close call.
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Reach Staff Columnist Matt Pressberg here.