8.2 Why Does California Skimp on Schools?

In the early ‘70’s, California committed between four and five percent of personal income (a common measure of funding effort relative to taxation capacity) to public K-12 education. This ratio fell in the late 1970s with passage of Proposition 13, and has never fully recovered. (It has almost certainly taken a major dive in the budget crunch of 2011, but it will be years before education statistics can tell us by how much.) Meanwhile, the mechanisms that fund California’s schools have changed utterly.

Today, funding for California’s schools is determined almost entirely by legal mandates at the state level. It was not always so; until the late 1970’s, schools were funded by local property taxes, and the most basic function of a school board was to set the local property tax rate. Rates varied among districts, and receipts varied according to both the tax rate and the assessed value of homes and commercial properties being taxed.

This arrangement was great for property-rich districts, but rotten for communities with low assessed values. Low-wealth communities would have had to set very high property tax rates in order to fund their schools like middle-class ones. The Serrano v. Priest case successfully challenged this arrangement. Is it really fair, the case asked, that some districts enjoy more funding per student than others? The case led to court-mandated “revenue limits” at 1972 spending levels to equalize funding per student at the district level.

The courts, in the Serrano decision, began the trend of removing money from public schools. As the state took over the role of determining the level of funding for schools, California “equalized downward.” Voters continued this downward trend by passing Proposition 13.

Passed in 1978, Proposition 13 lowered the property tax rate to 1% of assessed value. It also insulated property owners from higher taxes by freezing assessed values, allowing them to rise at a maximum annual rate of 2% regardless of market conditions. As the costs of providing education have outrun property tax receipts in the past three decades, school funding has been under steady pressure. Property taxes now cover just a fifth of school funds, and income taxes have had to climb to fill the gap.

Nothing painless can cover a gap like this. In 1984, California voters created a state lottery partly to raise money for education. It was sold to voters as a pain-free answer to the state’s education funding woes, but in truth it contributes about 1% of the total education budget.

In 1988, California’s voters, annoyed at the legislature’s failure to make a priority out of school funding, passed Proposition 98, which set rules to govern the amount of the state budget that must be committed to education under various circumstances.  This mandate was subsequently adjusted by Proposition 111. California’s voters passed these complex and rigid measures as amendments to the state constitution.

Because the legislature anyway must pass budgets by a 2/3 vote in both houses, it can and has set aside Prop 98 requirements in difficult years. Nevertheless, interpretation of Proposition 98 now dominates annual education budget discussions, rather than discussion of educational needs.

About three-quarters of K-12 education spending in California falls under Prop 98. The diagram shows the sources of K-12 funding at their pinnacle, in the 2008 budget. It is worth noting that property taxes, once the main source of revenue for the education budget, contributed only 20% of the total.

[Thanks to EdSource for their consistent work to clarify complex education issues.]

Next:  8.3 Should California Spend More?