So Cal education, LAUSD, the Cal States and the UCs

Prop. 30 fact check: We'll never know where the money actually goes

Gov. Jerry Brown

Sharon McNary/KPCC

California Gov. Jerry Brown speaks in support of Prop. 30 at a rally of UCLA students on campus, Oct. 16, 2012. Fact check No. 2: The $8.5 billion brought in by Prop. 30 will go to a "lockbox" called the Education Protection Account and can't be spent on anything else.

Next up: We examine the claim that Propostion 30 is a flawed measure.

Background: With less than a week to the Nov. 6 election, there's a lot of information - and misinformation - out there about Prop. 30. The measure, supported by Gov. Jerry Brown, would raise sales and income taxes in order to avert $6 billion in primarily education cuts.

Prop. 30 is written into the enacted 2012-13 California budget, which presumes that the measure will be approved by a majority of voters Tuesday. Over several posts, we try to break down the proposition and examine the big questions that have been raised in political ads these past few weeks.

Read the introductory post for details on what Prop. 30 does and what happens if it fails. 

Arguments against Prop. 30: The arguments fall under four main categories: no new taxes, the measure is flawed, the money would be wasted, and schools are a mess. These positions are primarily supported by the Howard Jarvis Taxpayers Assn., the National Federation of Independent Business California and Small Business Action Committee.

2) The measure is flawed

Claim: We will never know where the money actually goes. The money can be used for general expenses instead of schools. It will go to pay for pensions instead.

Facts: Prop. 30 creates the "Education Protection Account," a special fund inside the General Fund that is a "lockbox" to ensure the money is spent on education, according to the proposition language and John Mockler, a veteran of school finance and school policy expert.

This is Mockler's 48th budget. He was formerly on the state Board of Education and he has worked for the state Legislature. He is also referred to as the architect of Prop. 98. Prop. 98 -- often called the Prop. 98 guarantee -- was created to ensure that roughly 40% of the General Fund goes toward education. Over the years though, that guarantee has been suspended in bad budget times to allow the state to borrow billions to pay for other things.

H.D. Palmer, a spokesman for the state Department of Finance, explains that this measure would ensure education gets its share of funding: "All of the money goes into an account in Proposition 30 that is dedicated to schools; the indirect effect of that is that it relieves pressure on other parts of the General Fund."

Wait, what does that mean? It means schools will get what they are due; they'll be ensured the funding that comes in via that "lockbox" -- receiving nearly $3 billion more than they would have otherwise each year, Palmer says.

In all, Prop. 30 is expected to bring in about $8.5 billion in its first year because the income tax goes into place retroactively to Jan. 1, 2012. After that, it's expected to generate about $6 billion annually. Of this money, state law requires 89% be spent on K-12 education and 11% on community colleges. The exact amount generated for education through the measure may fluctuate, however, as it depends on a recovering state economy and changeable tax revenues.

According to the Legislative Analyst's Office, the money is put in the Education Protection Account and cannot be used for administrative costs. It provides local school boards the "discretion to decide, in open meetings and subject to annual audit, how funds are to be spent."

Prop. 30's language states:

"Each community college district, county office of education, school district, and charter school shall annually publish on its Internet Web site an accounting of how much money was received from the Education Protection Account and how that money was spent." 

Does this mean that money can go toward pensions? Each locality will ultimately decide how the money is spent, but it's likely that teachers who were laid off will be rehired and that funds could go toward salary, which does include benefits such as a pension.

The new revenues would also be used to pay down deferrals, or IOUs, the state has racked up over the years to school districts. Right now, that's about $10.4 billion — Prop. 30 in its first year would begin to pay back about $2.2 billion.

"Those deferrals really disproportionately affect certain types of schools -- rural schools have been affected, charter schools have been affected, and those schools that may not have access to lines of credit to cover their cash flow needs have been affected," Palmer says. 

"But there comes a point where you can no longer really continue a process of these deferrals without pushing a number of these districts to the point where they can no longer, even if they've got a line of credit, borrow against that. It’s somewhat like the state paying its AMEX bill using other schools’ VISA cards. At some point those cards reach their limit. So one of the things that occurs, if Prop. 30 passes, is we begin to pay back or pay down the amount of the deferrals that have accumulated in recent years."

The state would begin to pay schools back via a complicated funding mechanism in Prop. 98 that covers how the state borrows from school coffers during tougher times and how it repays that money later. In a nutshell: When General Fund revenue increases at a rate higher than personal income tax revenue, education receives roughly half of the difference in money on top of the roughly 40% guarantee, Mockler says.

Edgar Cabral, a principal fiscal and policy analyst for the Legislative Analyst's Office says that Prop. 98 is very sensitive to the health of the General Fund.

"If Prop. 30 passes, that improves the health of the General Fund, and that will increase the guarantee and provide additional revenue  for schools," Cabral says. "If that revenue is not there, it will be lower."

Mockler, who advised the governor on Prop. 30, put together an analysis on the measure. He says Prop. 30 is complicated and requires an understanding of Prop. 98, how the General Fund works, and a thorough reading of the initiative language itself. Not everyone has time for that.

"Understanding these initiatives, I mean it’s, as I say it, in both school reform, finance or instructional. Everybody wants it to be an elevator ride understanding it, it’s not," Mockler says. "You've got to take the stairs, and it’s very hard, you’ve got to go step 1, etc.

"This is not something you can turn a page and understand. It’s very complex; it involves Constitutional Law; it involves four court decisions; it involves one amendment to 98 that changed it dramatically. It involves budgeting provisions that have to do with the revenue fund, and accrual of revenues compared to cash basis for revenues..."

Read the measure for yourself: Here's the text and the LAO analysis.

Stay tuned for the next claim we'll examine -- The money would be wasted.

For you reference, here's the Mockler memo:

Tami Abdollah can be reached via email and on Twitter (@latams).

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