Friday, December 30, 2011

Your Tax Dollars At Work, School Funding Explained In California Supreme Court Case: California Redevelopment Association v. Matosantos

By Michelle Ball, California Education Attorney for Students since 1995


Have you ever wondered just HOW our schools are funded?  A great summary is included in California Redevelopment Association v. Matosantos, handed down this week (December 29, 2011) by the Supreme Court of California.


Justice Werdegar, writing for the Court, ultimately upholds Assembly Bill 1X26 which authorizes the closing of redevelopment agencies in California.  The case comes to a contrary opinion regarding Assembly Bill 1X27, a bill which gave a way for redevelopment agencies to remain open so long as they made certain payments.  


Here is what Justice Werdegar states (excerpted from the California Redevelopment Association v. Matosantos case directly) in the "Background" section.  I particularly like his wording when he says "a second event of seismic significance...," cute considering we are in California!


"A. Government Finance: The Integration of State, School, and Municipal Financing
For much of the 20th century, state and local governments were financed independently under the "separation of sources" doctrine. In 1910, the Legislature proposed, and the voters approved, a constitutional amendment granting local governments exclusive control over the property tax. (Cal. Const., art. XIII, former § 10, enacted by Sen. Const. Amend. No. 1, Gen. Elec. (Nov. 8, 1910); see Simmons, California Tax Collection: Time for Reform (2008) 48 Santa Clara L.Rev. 279, 285-286; Ehrman & Flavin, Taxing Cal. Property (4th ed. 2011) §§ 1:9-1:10, p. 1-14.) Each jurisdiction (city, county, special district, and school district) could levy its own independent property tax. (See, e.g.,Temescal Water Co. v. Niemann (1913) 22 Cal.App. 174, 176 ["It is conceded . . . that a municipality has the right to assess all real property found within its limits for the purpose of maintaining the municipal revenues, and that the county taxing officials have the right to levy upon the same property for county purposes."].)
This system of finance had significant consequences for education. Under the state Constitution, the Legislature is obligated to provide for a public school system. (Cal. Const., art. IX, § 5; Wells v. One2One Learning Foundation (2006)39 Cal.4th 1164, 1195.) Seeking to promote local involvement, the Legislature established school districts as political subdivisions and delegated to them that duty. (Wells, at p. 1195; Butt v. State of California (1992) 4 Cal.4th 668, 680-681; see also California Teachers Assn. v. Hayes (1992) 5 Cal.App.4th 1513, 1523.) Historically, school districts were largely funded out of local property taxes. (Serrano v. Priest (1971) 5 Cal.3d 584, 592 (Serrano I); Serrano v. Priest (1976) 18 Cal.3d 728, 737-738 (Serrano II); see County of Los Angeles v. Sasaki (1994) 23 Cal.App.4th 1442, 1450.) Under the California system of financing as it {Slip Opn. Page 5} existed until the 1970's, different school districts could levy taxes and generate vastly different revenues; because of the difference in property values, the same property tax rate would yield widely differing sums in, for example, Beverly Hills and Baldwin Park. (Serrano I, at pp. 592-594.)
We invalidated that system of financing in Serrano I and Serrano II, holding that education was a fundamental interest (Serrano I, supra, 5 Cal.3d at pp. 608-609; Serrano II, supra, 18 Cal.3d at pp. 765-766) and that financing heavily dependent on local property tax bases denied students equal protection (Serrano I, at pp. 614-615; Serrano II, at pp. 768-769, 776). The Serrano decisions threw "the division of state and local responsibility for educational funding" into " 'a state of flux.' " (Los Angeles Unified School Dist. v. County of Los Angeles (2010) 181 Cal.App.4th 414, 419.) In their aftermath, a "Byzantine" system of financing (California Teachers Assn. v. Hayes, supra, 5 Cal.App.4th at p. 1525) evolved in which the state became the principal financial backstop for local school districts. Funding equalization was achieved by capping individual districts' abilities to raise revenue and enhancing state contributions to ensure minimum funding levels. (Lockard, In the Wake of Williams v. State: The Past, Present, and Future of Education Finance Litigation in California (2005) 57 Hastings L.J. 385, 388-391; see generally Wells v. One2One Learning Foundation, supra,39 Cal.4th at p. 1194 [discussing current funding regime].)
A second event of seismic significance followed shortly after, with the voters' 1978 adoption of Proposition 13. (Cal. Const., art. XIII A, added by Prop. 13, as approved by voters, Primary Elec. (June 6, 1978).) As noted, before 1978 cities and counties had been able to levy their own property taxes. Proposition 13 capped ad valorem real property taxes imposed by all local entities at 1 percent (Cal. Const., art. XIII A, § 1, subd. (a)), reducing the amount of revenue available by more than half (Stark,The Right to Vote on Taxes (2001) {Slip Opn. Page 6} 96 Nw.U. L.Rev. 191, 198). In place of multiple property taxes imposed by multiple political subdivisions, it substituted a single tax to be collected by counties and thereafter apportioned. (Cal. Const., art. XIII A, § 1, subd. (a).) Significantly, Proposition 13 did not specify how that 1 percent was to be divided, instead leaving the method of allocation to state law. (See Cal. Const., art. XIII A, § 1, subd. (a)[real property tax is "to be . . . apportioned according to law to the districts within the counties"]; Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 225-227; County of Los Angeles v. Sasaki, supra, 23 Cal.App.4th at pp. 1454-1457; City of Rancho Cucamonga v. Mackzum (1991) 228 Cal.App.3d 929, 945.)
Sasaki, supra, 23 Cal.App.4th at pp. 1451-1452; California Teachers Assn. v. Hayes, supra, 5 Cal.App.4th at pp. 1527-1528.) Second, by failing to specify a method of allocation, Proposition 13 largely transferred control over local government finances from the state's many political subdivisions to the state, converting the property tax from a nominally local tax to a de facto state-administered tax subject to a complex system of intergovernmental grants. (See Rev. & Tax. Code, § 95 et seq.; Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d at pp. 226-227; Sasaki, at pp. 1454-1455; Stark, The Right to Vote on Taxes, supra, 96 Nw.U. L.Rev. at p. 198.) fn. 3 Third, by imposing a unified, {Slip Opn. Page 7} shared property tax, Proposition 13 created a zero-sum game in which political subdivisions (cities, counties, special districts, and school districts) would have to compete against each other for their slices of a greatly shrunken pie.
In 1988, the voters added another wrinkle with Proposition 98, which established constitutional minimum funding levels for education and required the state to set aside a designated portion of the General Fund for public schools. (Cal. Const., art. XVI, § 8; see Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at p. 420; California Teachers Assn. v. Hayes, supra, 5 Cal.App.4th at pp. 1517-1518.) Two years later, the voters revised and effectively increased the minimum funding requirements for public schools. (Prop. 111, Primary Elec. (June 5, 1990) amending Cal. Const., art. XVI, § 8; see County of Sonoma v. Commission on State Mandates (2000) 84 Cal.App.4th 1264, 1289.)
In response to these rising educational demands on the state treasury, the Legislature in 1992 created county educational revenue augmentation funds (ERAF's). (Stats. 1992, chs. 699, 700, pp. 3081-3125; Rev. & Tax. Code, §§ 97.2, 97.3; see Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at pp. 420-421; City of El Monte v. Commission on State Mandates (2000) 83 Cal.App.4th 266, 272-274; County of Los Angeles v. Sasaki, supra, 23 Cal.App.4th at p. 1447.) It reduced the portion of property taxes allocated to local governments, deposited the difference in the ERAF's, deemed the balances part of the state's General Fund for purposes of satisfying Proposition 98 {Slip Opn. Page 8} obligations, and distributed these amounts to school districts. (County of Sonoma v. Commission on State Mandates, supra, 84 Cal.App.4th at pp. 1275-1276; see Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at p. 426 [ERAF's are an " 'accounting device' " for reallocating property taxes to school districts from other local government entities].) Periodically thereafter, the Legislature through supplemental legislation required local government entities to further contribute to the ERAF's in order to defray the state's Proposition 98 school funding obligations. (Los Angeles Unified School Dist., at pp. 420-421.) Local governments had no vested right to property taxes (id. at p. 425); accordingly, the Legislature could require ERAF payments as "an exercise of [its] authority to apportion property tax revenues." (City of El Monte, at p. 280; see Cal. Const., art. XIII A, § 1, subd. (a).)"


For more from this case, please see it here.
Where else could one find such a great summary of the complex background regarding school financing?  Thank you your honor!


Best,

Michelle Ball
Education Law Attorney
LAW OFFICE OF MICHELLE BALL
717 K Street, Suite 228
Sacramento, CA 95814
Phone: 916-444-9064
Fax: 916-444-1209
Website: http://www.edlaw4students.com/

Please see my disclaimer on the bottom of my blog page. This is legal information, not legal advice and no attorney-client relationship is formed by this posting, etc. etc.!  This blog may not be reproduced without permission from the author and proper attribution of authorship.

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