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Education Funding Diversions

Education Funding Diversions

Warning: The reality of what the state has done with taxpayer money allocated to our children and our public education system can be disheartening. Please believe us when we tell you that together we CAN and we WILL stop this madness. When we engage our communities and commit to support policies, legislation and candidates that put the needs of our children and our state first, it is a game changer. JOIN US today and spend your time telling Sacramento to clean up these diversions vs. spending your time working on the endless cycle of school fundraising that drains our wallets and our spirits.  You do not need to become a finance expert, but instead to understand there is a pattern here that is hurting our children, our public education system, the integrity of our government and the future of our state. Here goes...

Parents are puzzled.  Why are state and property tax bills so high? Why is our kids' school funding so low?

Pundits, politicians and PACs blame their favorite scapegoats:  Prop 13, illegal immigrants, greedy teachers’ unions, wealthy basic-aid districts, top-heavy management!  White papers dissect school funding from every angle, but miss the black hole: 

California has a pattern of tricks 

that allow tens of billions of “education funds” to be diverted

from our schools every year.

We’ve followed the money—the actual revenues raised and where they go—and have discovered how funds allocated to your child’s school are being manipulated away each year. We could call them the seven deadly sins, because they have killed the opportunity for many of the children of California to have access to a highly effective education and the chance to realize their potential. But we won't be any more dramatic - these intentional diversions speak for themselves: 

1. Local Funds Are Shifted Away from Schools (AB 8 Split of 1979)

What Happened: In the aftermath of Prop 13, the Governor & Legislature told cities and counties to backfill their losses -- taking 30% of the property tax revenues that were allocated to schools.  Sacramento promised to make up the schools’ losses from the State's General Fund.

Result:  This reduced property taxes flowing to K-12 schools (less than 10% in SF, 20% in Los Angeles, Alameda, and other major counties, leaving some wealthier counties at 40%+, like Marin, Santa Barbara, and Napa)

Lessons:  Many schools (especially urban) became heavily dependent on the State’s General Fund.  Revenue for schools has switched to unstable income tax revenue—it cycles with the State’s economy.  Without changes in the local property tax allocations, changes to Prop 13 will only provide minimal extra funding to most urban schools. (In SF, for example, K-12 schools would only get 10 cents per dollar raised through increased property taxes.)

2. Proposition 98 is Routinely Manipulated and Undermined

Background: After Prop 13 hit education funding, voters approved Prop 98 (1989) to give K-14 schools a “fair share” of the state’s growing budget.  Prop 98 funding from the State General Fund now accounts for the majority of most schools’ funds.  But, no sooner had voters acted than …

  • Prop 111: “Traffic Congestion Relief and Spending Limitation Act Of 1990”

What Happened:  The Legislature, under the cover of gasoline taxes to build highways and the need for a balanced budget, gutted Prop 98 by introducing “Test 3.”

Result:  This allows the state to cut back funding to education during a slow economy with only “maintenance factor” promises to catch up education funding when times get better.

  • Proposition 30 (2012) “Temporary Taxes to Fund Education…”

What Happened:  The Governor proposed, and the Legislature passed, a state budget that included the funding proposed under Prop 30 as part of the Prop 98 funding to schools—so funding to schools would be cut if it didn’t pass.  Under the “promise” of giving funding to education through increases in personal income and sales taxes, voters approved Prop 30.  But there was a hidden caveat (in “realignment”)…

Result:  The State was able to pay off its debt to schools (“deferrals,” see back), but the changes to the state constitution actually diverts funds away from schools in the long term.  $6B of new taxes were added temporarily, but $6B of existing sales taxes were removed from the Prop 98 calculation permanently, resulting in a $2.4 B annual loss to education! [Note: Prop 98 allocates roughly 40% of the general fund to public education, thus a $6 Billion diversion of funding from the general fund will reduce Prop 98 funding by $2.4 Billion or ($6B*40%).]

Lesson:  Be suspicious of any proposition by the Governor or Legislature that impacts education funding because regardless of what the LAO analysis states in the voter guide, the proposition probably hurts your schools. Don't trust the status quo.

  • The “Triple Flip” & The VLF (Vehicle License Fee) Swap

What Happened:  Both diverted local property taxes allocated to schools to satisfy the State's debts to cities and counties, with the promise that "Proposition 98 would hold schools harmless."  

Result:  The Swap shifts more funds than the State’s underlying debt ($2.5B extra in 2014-15 alone!).  This helped grow the massive deferrals debt of 2008-2015 (over $10B).  Both mechanisms shifted the State's credit risk onto schools.  You can learn more about that here

Lesson: The Legislature is always eager to ‘make a deal,’ and the State is a lousy credit risk.

3. Schools Are the State's Lender of Choice

What Happened:  When the State economy contracted (2008-2012), the State not only reduced actual Prop 98 spending to schools but also “deferred” payments (e.g. issued IOU’s) to schools, to the tune of $10B.

Result:  This forced schools to incur borrowing costs, raid reserves (reducing interest income and scaling back capital projects), and cut programs/raise class sizes in order to pay their bills.

Lesson: When hard times come, your schools are forced to bear the costs of the State’s debts.  

4. Unfunded Promises Have Consequences

Background:  At the height of the dot-com bubble (1999), the Legislature was persuaded to increase teacher benefits and pensions, but without dedicating a funding stream for these increases.

What Happened:  When the unfunded liability in CalSTRS had grown to $80B+, the Legislature finally took action in 2015…and dumped the majority of the financial burden on school districts.

Result:  Schools educating today’s and tomorrow's students are forced to pay for these promises now (and for the next 29 years) – with the result that future ‘spending on students’ is really just paying for teaching a decade ago and for the lost interest on that obligation.

Lesson:  Unfunded commitments and mandates grow until someone is forced to pay them.

5. Manipulate the Well-Meaning Voter:  Proposition 2 (2012): “The Rainy Day Fund”

What Happened:  Under the guise of the State and schools "saving for a rainy day," voters approved the Governor’s & Legislature’s Proposition 2.

Result:  SB 858 was added to Prop 2 in the 11th hour and requires schools to dump $6B in savings, their local “rainy day funds,” in the year after the first penny goes into the State "rainy day fund for schools." Here is an analysis by the LAO.

Lesson:  Even if a proposition doesn’t seem to impact education funding, the funds are just too tempting not to tap into somehow, so read propositions sponsored by the Legislature carefully.

6. Cities Want School Funding for Redevelopment

What Happened:  The Governor & Legislature ignored how redevelopment was turbocharged by Prop 13, removing another 20% of the property taxes that were left to schools. (They dismissed the issue because school losses would be “made up” from the State's General Fund.)

Result:  In 2010 the Governor & Legislature had to take back Redevelopment Funds from cities to help pay for education – only to discover that these funds had been committed to debt service[TH2] .

Lesson:  Cities, hungry for revenue, are watching for an opportunity to take property taxes away from schools again (e.g. Initiative #13-0065 in 2013).

7. Unequitable Application of Prop 13

Background:  Commercial property lobbies have successfully “persuaded” a series of California governors and legislatures to allow loopholes in Prop 13 to escape property tax increases.  Real estate partnerships and large commercial investors hide behind small business owners.

Result:  Reduces overall property tax revenues and shifts the burden of paying for local services onto homeowners.

Lesson:  Money and successful lobbying have reduced local taxes for some privileged property owners, while creating a large group of voters who expect more from their cities, counties, local services and schools than they get.

While voters work very hard to get money into schools -- others work very smart to get it out again.

Why are our taxes so high, while our school funding is in the cellar?

Maybe it’s because school funding is the easiest to raise -- and raid.


* See us for updates. We are in the process of adding links for those who would like more detail on the references and research here. Contact us here if you would like a 2-page PDF of this information. Thank you.