A Tandem Bike for Local-State School Finance

January 7, 2013 by  
Filed under Support, The System

In 2013, most California education-watchers expect two policy debates about school finance. Two is not enough; there will need to be three.

Weighted student funding
The first debate will probably be about how to inject a level of principle into the capricious way that state funds are apportioned to school districts. The arcane term in this debate is “weighted student funding,” which proposes to allocate dollars to districts on the basis of the needs of the students in attendance rather than on the basis of program allocations and decades-old political determinations. This worthy idea is nothing new; it was a centerpiece of the 2008 recommendations of the Education Excellence Committee. But it is politically challenging, particularly while effective resources per student in this state remain substantially below national norms. Any change of this kind will create winners and losers. Californians are not known for Vulcan dispassion.

Easier parcel taxes
The second debate will probably be about whether to allow local school districts an easier way to raise local parcel taxes in support of local schools, or perhaps in support of local students. (The difference may seem subtle, but it means everything if your kids attend a charter school or if you want to enable partnerships that extend beyond traditional schools.) Prop. 13 closed the door on local use of property taxes based on assessed property value, but it left the door cracked open for other approaches. With a two-thirds vote, districts can levy local parcel taxes, which are based on the existence of a parcel rather than on its value. (A late-2012 court ruling in Borikas v. Alameda Unified School District limits districts’ flexibility in creating parcel taxes.) Some of California’s wealthiest communities have been able to sustain strong participation in local public schools through successful local parcel tax campaigns that enable them to offer school programs capable of competing with private schools.

A lower passage threshold for parcel taxes would significantly expand the number of districts able to muster the political support to pass them. In late 2012, Sacramento rumblings seemed to suggest that the debate will focus on whether to drop the passage threshold to 55%, mirroring the facilities bond threshold set by Prop. 39.

The combination of these two concepts (weighted student funding and a lower parcel tax passage threshold) is politically appealing. Districts like Los Angeles have been “winners” at lobbying for state-funded programs under the status quo, and might resist a weighted formula alone. But a lower pass rate for parcel taxes as part of the deal could change everything. It would neatly deflect the opposition of higher-wealth districts by giving them a way to solve their own funding problems locally. It would give districts in middle-wealth districts a new shot at meeting their funding needs if they can build trust with their local communities. Nonprofit community organizations would have a new reason to drive community discussions. District leaders and union leaders would have a powerful new reason to work through their differences.

This kind of high-engagement local dialogue has been substantially absent from California education for 30 years. Earnest, detailed local conversations about local innovation powered by local funding commitments could create new conditions for innovation in California education.

But there’s a problem. On its own, this plan stinks.

A lower passage threshold for local parcel taxes doesn’t help if your local taxpayers have no wealth to tax. This is a fatal flaw in the proposal to simply lower the parcel tax passage threshold to 55 percent. If the plan does not address the needs of students in poor communities, it’s not equitable policy. Sooner or later, courts would throw it out.

 

The tandem bicycle
Which brings us to the third option: a system that matches local funding with state funding.

Here’s how it could work. The passage threshold for local taxation in support of schools would be lowered to 55%, matching the level set under Prop. 39 for school facilities bonds. In communities with a strong tax base per student in residence, that would be the end of it – the money raised locally would stay local, period. In districts with a weaker tax base per student, however, the state would have an obligation to match the local taxes raised. The point of this match would be to equalize local funding power, enabling all communities to take an active role in the support of their schools.

Examples can help clarify the concept. The tax base per student in Fresno is much smaller than that in San Francisco. San Francisco enjoys a powerful local tax base, with high local wealth and relatively few students per taxpayer. Under the tandem bicycle plan, San Francisco would gain the capacity to pass local tax measures in support of education at a lower threshold, but it would receive no matching funds. Fresno, by contrast, has a relatively small tax base per student. Therefore, it would receive significant state matching funds. The point is to ensure that local funding capacity everywhere ends up equivalent to at least the state median. In the metaphor of the tandem bike, the local community would steer, and the state would help pedal.

Some people will hate this idea, of course. Show me a policy involving money, and I’ll show you a policy that someone thinks comes straight from the pit of hell. But most people trust their local representatives and leaders more than they trust policymakers in distant Sacramento. And people are certainly more comfortable with paying taxes if they know the taxes will benefit their own community.

Some will object, rightly, that parcel taxes are a clumsy vehicle. Wouldn’t it be better, and more just, to base property taxes on property value rather than on property parcels? Sure – blame the voters of 1978 for foreclosing on that option. Perhaps a bold legislative leader, thinking through the 55 percent parcel tax idea, will choose to test the voltage level of the third rail, instead.

I’m often asked where the money to meet the state’s “tandem bike” matching fund obligations would come from. Here’s one possibility: Matching obligations would simply come off the top of the state’s general fund, as a payment commitment on par with bond debt. Then education funds would be allocated to students and their schools and districts according to a weighted student formula. The 2008 report of the Education Excellence Committee includes an analysis of how a variable matching fund would work. Additional discussion can be found here.

There are many advantages to re-engaging communities in the critical task of funding local education. But local funding power varies greatly. State and local funding will work best in tandem.

Note: This post first appeared on EdSource.org, where it received many useful comments

Comments

2 Responses to “A Tandem Bike for Local-State School Finance”
  1. Rick Pratt says:

    This idea, sometimes called “district power equalizing” or “guaranteed yield,” has been around for about 40 years and was considered by California in response to the Serrano lawsuit. However, it applies to ad velorum taxes, not to parcel taxes, which–as Jeff notes–are not based on the value of the property being taxed. It was rejected by California and other states that considered it, because it made state spending partially a function of local actions. The state would have no way of controlling spending from its own budget or even knowing what the state cost would be from year to year until local elections took place. This would make budgeting and long-term planning for all state programs–including education–even more difficult than it already is. Taking it off the top of the state General Fund sounds simple, but it reduces funding available for other state program, including many programs that also benefit students. Also, having a weaker or stronger tax base is not necessarily a good indicator of taxpayer wealth. There are plenty of low wealth families who reside in relatively high wealth districts that are high wealth because of commercial and industrial property, not because of residential property. Finally, in the case of an ad velorum tax, it’s pretty straight forward to guarantee a dollar yield for a specific rate of taxation. That ensures that there is still a local contribution, based on ability to pay, which is (crudely) measured by assessed valuation per student. But a parcel tax is a flat tax per parcel. The amount that can be raised is strictly a function of what the voters are willing and able to pay, not of property wealth. The more they’re willing to pay, the more the state would be on the hook for. To put it in “economist-speak,” the state would be subsidizing communities that have a high “taste” for education, independent of the actual wealth of its residents.

    • jeffcamp says:

      Rick, thanks for the comments. I agree that there have been significant precedents for a hybrid state/local system for education funding. A few years ago EdWeek counted 22 states as using some form of power equalizing methodology, and although both devils and angels hide in the details, there is plenty to learn from others, and from history. One lesson that seems plain is that the funding system we have today isn’t working very well. Among other things, it has centralized power in Sacramento, and removed an important imperative for meaningful dialogue between education leaders and education constituents at the local level. It also is strongly implicated in the collapse of political will to fund education in this state at a level comparable to other states on a purchasing-power basis.

      I agree that by taking on a commitment to (variably) match local funds for education, state budget forecasting would have to adapt to a new element, and it would make sense for there to be budgeting guard rails to reduce the risks of unintended consequences. A fully developed policy proposal would need to spell out those guard rails.

      But the root issue at stake isn’t to deliver an environment that makes for easy forecasts — it is to design a system that delivers equitable and sufficient opportunity to learn in a manner that improves the chances of good leadership. For 30 years we have been on a path of centralization. Power follows money, and it seems time to swing the pendulum in the other direction.

      I tend to agree with the hypothesis that there will be variability in the local “taste for education,” and that a tandem approach would bring additional resources to those communities that have the taste. I am not aware of good social science on the power or stability of this effect (or what factors drive it — for example, it might connect to the competence of local leadership, which might be self-correcting through the ballot box). If you know of research on this point, please let me know.

      I also strongly agree that a revenue solution that involves local funding through an honest ad valorem approach would be better than parcels or other basis.