Policy Brief

Analysis of California’s Proposition 88

Education Funding, Real Property Parcel Tax, Initiative Constitutional Amendment and Statute

Executive Summary

Proposition 88 is a Constitutional Amendment and Statute initiative that according to the California Secretary Of State’s Office:

Provides additional public school funding for kindergarten through grade 12 by imposing a $50 tax on each real property parcel; exempts certain elderly and disabled homeowners. Funds must be used for class size reduction, textbooks, school safety, Academic Success facility grants, and a data system to evaluate educational program effectiveness. Provides for reimbursement to government entities to offset anticipated decrease in other tax revenue. Prohibits fund use for school administrative overhead. Requires school district audits and penalties for fund misuse. Excludes funds from Proposition 98 calculations. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local governments: Annual revenue of up to $500 million from a new, statewide parcel tax with the revenue dedicated to specific K-12 education programs (such as class size reduction, instructional materials, school safety, and facility grants).

Proposition 88 gives special interests a loophole to avoid the two-thirds voting requirement of Proposition 13. Since Proposition 13 only applies the two-thirds voting requirement for parcel taxes to local initiatives, and statewide property initiatives for parcel taxes only need a simple majority to pass, this initiative works around the protections of Proposition 13 to create easy access to property taxes. Once one statewide parcel tax is approved by a simply majority vote, increases in the tax in the future are likely. For example, the continuing efforts to raise new cigarette taxes and new taxes on the wealthy demonstrate how once a specific tax is successful other special interests will try to raise new revenue through additional taxes on the same sources.

Governor Schwarzenegger has increased education spending in California by more than 17 percent over the last two years. Local school districts have also received large increases in discretionary funding. If local school districts feel the need to increase funding for the education programs identified in Proposition 88, they can direct the increased funding from the new state budget.

Proposition 88 takes what traditionally has been a local tax-the parcel tax-and starts using it for state purposes. Decisions about property tax spending for education are best made at the local level. If the new discretionary funds are not enough, local school districts are free to take their case to local voters through the initiative process to pass a local parcel tax for specific education needs with a two-thirds approval by local voters. The state already has enough sources of tax revenue including income, capital gains and most of sales taxes. More than 40 percent of state general revenue already funds education.

Furthermore, education spending in California is at an all-time high. Proposition 88 would offer schools a tiny increase in revenue in exchange for a large bureaucratic administrative hassle. The initiative has strict accountability measures that require districts to invest in audits and tracking mechanisms for a tiny amount of money. While accountability is a good thing, this initiative applies the most severe penalties for the misuse of funds to the smallest revenue stream and creates another burdensome administrative requirement for local school districts. The initiative also specifically excludes all of Proposition 88 funding from being used for administrative purposes. Therefore, school districts may have to use revnue from other funding streams to actually pay for the monitoring costs of Proposition 88. These funds would be restricted to very narrow education purposes. Furthermore, this initiative funds programs that are duplicative and unproven and that have already received large increases in funding for the 2006-2007 school year.

The bottom line is that Proposition 88 creates a whole new kind of statewide tax. Currently all property taxes are local and used for local services from roads to schools. Proposition 88 would encourage other advocacy groups to pass more and bigger statewide property tax proposals. This proposition is in conflict with the clear intent of Proposition 13 to protect citizens from excessive property taxes and to give local residents control over the spending of property taxes raised in their communities.