Archive | October 2014

Describe and analyze the relevance and impact of Proposition 13, AB 8, & Gann Limit on financing California education from the perspectives of equity and adequacy. By ShaRon Davis and Tracey Washington

Public school funding is the largest program in the California State Budget receiving more than 40 percent of the state’s General Fund resources (CDE., 2014) and yet the $70 billion allocated to the public K – 12 schools in the 2013 – 2014 school year were not adequate. The question of adequacy involves what is enough to educate a child and the answer differs based on the needs of the child. In California most of the learners speak English as a second language and therefore need more money invested into programs specifically designed to teach them English before they can learn the common core subjects. California also has this nation’s worst child poverty rate (WestEd.org 2000) and children from low income families do not have the basic resources required for learning. Therefore, the state which is charged with providing a public school system that offers all students an adequate education (Townley, Schmieder-Ramirez, & Wehmeyer, 2012) must provide monies to supplant as well as supplement instruction. The following presentation will discuss three of the laws that dictate how public schools are funded in California.

Proposition 13

Proposition 13 was meant to provide some ease for property owners. Before proposition 13 the county assessor decided the worth of property and the tax. This practice was subjective and biased (Cal-Tax.org. 1993). Proposition 13 sets limits to taxes at one percent of the property’s purchase price with taxes not increasing more than two percent in any given year. What homeowners believed was in their favor also reduced taxes on commercial property; property used for business. Additionally some tax laws (loopholes) enabled commercial property owners to avoid paying taxes usually based on the percentage of the business that an individual owned (Cal-tax.org, 1993). The owner controlling more than fifty percent of a jointly owned business pays the property taxes. Proposition 13 helped both homeowners and business owners but it hurt the state’s general fund from which school financing was derived because it decreased the funding to schools. Proposition 13 maintains low tax rates on property until it is sold and then the tax owed is reassessed (California Tax Data.com, 2014). When the market value of the property increases, property sells at higher rates and the additional tax revenue collected can help schools, but during the recent recession real estate values dropped and people were not selling their property so there was insufficient money to invest in education (public schools).

However, California is in a period of economic recovery and Fund the UC, a student coalition, has a practical solution to Proposition 13 which is to do away with the two percent maximum yearly increase for commercial property assessments in favor of assessing the properties at their actual market value. For example, commercial and industrial property would be assessed differently from residential property through a tiered system. It requires land and buildings owned by publicly traded companies to be reassessed every three years instead of when the assets change hands (Marois & Nash, 2011). California has dropped in national ranking from one of the best public school systems in the country to the bottom. Although this reform may not be welcomed by property owners of commercial and industrial businesses, it is an equitable move to ensure more funding for public education because commercial and publicly traded companies have held an unnatural advantage for years as the value of their property has been grossly underestimated (Senior Editorial Board, 2014). The California Legislative Analyst’s Office projects that by doing this, the state tax revenue will increase by $4 to $5 billion, with $2 billion of that projected to be spent on education (Senior Editorial Board, 2014). Currently, Fund the UC is lobbying state officials in Sacramento to put a Proposition 13 reform measure on the 2016 California ballot (Senior Editorial Board, 2014).

GANN

According to Martin (2000), “in the late 1970’s the Gann limit prohibited the Legislature from spending excess stashes of cash; while the goal of Proposition 13 (Article XIIIA) was to cut local property taxes, it still left taxpayers vulnerable to increases in other types of taxes, and the initiative did not limit state spending and local revenue growth (p. 1).” Proposition 4 (Gann initiative, Article XIIIB) said to be the meat of Proposition 13, sets limits to the amount of money state and local governments can receive each year from taxes. The government calculates annual operating budgets and collects taxes to fund these operations. All taxes collected in excess of the budget should be returned to taxpayers.

According to Martin (2000), “eight years after the passage of Proposition 4, California experienced a revenue flow of $1.1 billion over the Gann limit. Governor George Deukmejian wanted to spend $400 million on schools and refund $700 million to taxpayers, the Legislature refused to pass the bill authorizing the education appropriation (Martin, 2000).” Shortly thereafter, two initiatives were placed on the ballot to fine-tune the Gann limit; Proposition 98 of 1988 allowed schools to receive Gann limit refund revenues up to four percent of schools’ minimum funding base and Proposition 111 of 1990, altered how the Gann limit is calculated. Proposition 111 added K-14 public school enrollment rates to the population formula correcting school-funding inequities and dedicating half of the excess revenues to taxpayers and the other half to schools. It also declared that the Gann limit would trigger only if tax proceeds were in excess for two consecutive fiscal years (Martin, 2000).

The government calculates the cost of living increases as the change in the California per capita personal income (CDE., 1978; Martin, 2000). Gann sets limits to appropriations on some, but not all appropriation limitations and some monies collected in excess of appropriations is not returned to the taxpayer. State subventions for example are exempt from appropriation limitations, as well as debt service, appropriations for mandates ordered by the courts or the federal government (Martin, 2000). Additional monies collected to respond to emergencies such as earthquakes, fires, floods are not subject to appropriation limitations. But, school operating budgets, faculty, instructional materials, school facilities for K-12 education and community colleges are subject to appropriation limitations. Pre-K budgets were not delineated in this discussion. The money allocated to the operation of public schools is not adequate. The question of equity seems to be a question of how much money is necessary to operate the schools adequately. How much are people willing to pay to educate future generations? This question is paramount because the workers and leaders today must be replaced in order for this nation to continue to maintain and achieve. Some of the tax burden experienced by homeowners must be offset by tax dollars from businesses that pay little if any taxes toward public education. An important note on GANN; it is possible for the government to adjust the appropriation limits when more tax money is collected and therefore not need to return money to taxpayers, but it is not clear when and how this decision is made.

AB 8

After the passage of Proposition 13, educational finance was re-addressed, with school districts receiving a portion of the property tax (through the AB 8 allocation formula) and direct payments from the state, and other sources (Chapman, 2006; Digest Key, 2009-2010). This transaction reduced schools’ reliance on property tax revenues and increased the state’s share of responsibility for school finance (Jayamaran, 2006). AB 8 is an attempt to develop another method of collecting and allocating funds for public education. It is a new plan that will be more transparent and clearly state the formula to be used, unlike the system that is used today. This current system is considered complex, irrational and burdensome and its complexity is an obstacle to transparency. Therefore the new plan produces an easy to understand allocation system that will support student learning (Digest Key, 2009-2010). School funding in the west is lower than in other regions. Assumptions that schools in these states can reach ambitious goals for students by reallocating existing resources may not be valid. Studies of best practices substantiate what works to adequately educate children which includes funding pre-k programs, reducing class sizes, increasing professional development for teachers, providing tutors for struggling students and providing access to computer technologies. All these practices require additional funding. Adequacy funding formulas expose the gap between what schools now receive and what they really need, particularly those schools facing the costs of educating large numbers of students with special needs (Townley, Schmieder-Ramirez, & Wehmeyer, 2012).

References

California Data.com (2014) http://www.californiataxdata.com/pdf/Prop13

California Taxpayers’ Association (1993) http://www.caltax.org/

Chapman, J. I. (2006). Proposition 13: Some unintended consequences. Public Policy Institute

of California, p. 1-31, http://www.ppic.org/content/pubs/op/OP_998JCOP.pdf

Jayamaran, N. (2006). Schools finance in California and the proposition 98

guarantee. California Budget Project, p. 1-31, Sacramento:CA.

http://www.cbp.org/pdfs/2006/0604_prop98.pdf

Marois, M. B. & Nash, J. (2011). California schools suffering as proposition 13 tax cap breeds

fiscal chaos. Bloomberg, p. 1-3.

http://www.bloomberg.com/news/print/2011-07-12/california-schools-suffering-as-prop

Martin, L. (2000). Exploring the Gann Limit: Then and now. California Taxpayers’ Association,

p. 1-6, http://www.caltax.org/mem/digest/July2000.jul00-9.htm

Senior Editorial Board (2014). Reform prop. 13 to fund education. The Daily Californian,

p. 1-10, http://www.dailycal,org/2014/02/11/reform-prop-13-fund-education

Townley, A.J., Schmieder-Ramirez, J.H., & Wehmeyer, L.B. (2012). School finance: A

california perspective, 9th Edition, Dubuque, Iowa: Kendall/Hunt Publisher