Legislative Update, September 22, 2006

Voter Guide to Education-Related Propositions
National Election, November 7, 2006

From EdSource (www.edsource.org)

Proposition 1D: Kindergarten-University Public Education Facilities Bond Act of 2006

Proposition 88: A Statewide Parcel Tax for Education Funding

Proposition 1D: Kindergarten-University Public Education Facilities Bond Act of 2006

If passed on Nov. 7, this bond measure would provide $10.416 billion in facilities funds for public education. The bulk of the funding-$7.329 billion-is earmarked for K-12 schools, with the remaining $3.087 billion for higher education.

Like past California school bond measures, Proposition 1D has funds for new school construction and modernization, overcrowded schools, and joint-use projects. But Proposition 1D allocates a larger portion of the funds to modernization than in recent measures and is unique in several ways.

Proposition 1D:

• Provides the largest sum ever for charter schools -$500 million-and makes it easier for them to obtain funding for facilities.
• Allocates $500 million for new or reconfigured career-technical education facilities and equipment.
• Allows up to $200 million of the new construction and modernization funding to be used for small high schools or "schools within a school."
• Allocates $100 million for incentive grants for environmentally friendly construction .
• Requires that $200 million of the $890 million allocated to the University of California be used to support medical education programs, with an emphasis on telemedicine (long-distance medical care using computers and telecommunication devices).

Furthermore, Proposition 1D is part of a bipartisan package of ballot measures (1A through 1E)-approved by two-thirds of the state Legislature and signed by the governor. The package includes $37.3 billion in bonds to shore up the state's infrastructure.

Bonds help provide needed classrooms

Most California school districts rely on state-issued general obligation bonds to help them fund school facilities. To qualify for state money, districts must supply matching funds. For new construction, the state and district each pay half the cost. For modernization projects, the state pays 60% and districts pay 40%. Hardship cases, as defined by the Office of Public School Construction (OPSC), are exempt from some or all the matching funds requirement.

Over the past decade, voters have approved a total of $28.1 billion in state bonds for K-12 school facilities, according to the Legislative Analyst's Office (LAO). About $3.7 billion of these funds had not been spent as of June 2006, according to the OPSC.

However, the OPSC estimates that over the next five years (2006-07 through 2011-2012) California will need more than $6 billion in state matching funds to build 18,000 new classrooms. Another $5.3 billion will be needed to modernize more than 61,000 classrooms that are 25 years or older. Together the new and remodeled classrooms would serve almost 2.1 million K-12 students.

Crowded schools and joint-use projects

Under Proposition 1D, $1 billion will be available to districts with severely overcrowded schools to replace portable classrooms with new permanent classrooms, unless the portables are being used to implement a class size reduction program. The districts would also have to remove portables from overcrowded school sites and reduce the total number of portables within the district. The LAO estimates that 1,800 schools (or about 20% of all schools) are eligible for this funding, which requires a 50% local match except for hardship cases.

The measure also sets aside $29 million to build or reconfigure existing joint-use facilities, which are used by K-12 schools and other public entities, such as libraries or colleges. And the state can use up to $21 million from previous bond measures for such purposes. In addition, community colleges, CSU, and UC must annually consider building or remodeling facilities that could be jointly used by more than one higher education institution.

Charter schools

• Proposition 1D supports the growing charter school movement and relieves pressure on school districts, which are required to provide charter schools of a certain size with facilities that are equal to other district facilities. Besides allocating $500 million, Proposition 1D has rules governing the distribution of funds, including some that change existing law:
• Charter schools that meet certain requirements can apply directly to the state for funding to modernize school facilities.
• The measure gives preference to charters that use existing district facilities. In addition, funds are to be distributed fairly across the state and among grade levels, with preference given to charters that are located in overcrowded districts or low-income areas and to those that are run by nonprofits.
• Under current law, if the state provides facility funds for a charter school, the school district's eligibility for future facility funds for its noncharter schools is reduced accordingly. Proposition 1D appears to require this reduction in eligibility only when the charter school provides seats for the district's "unhoused" pupils. (If the number of pupils in a district exceeds seating capacity standards, the district has "unhoused" pupils.) However, the language in the proposition is somewhat open to interpretation. If the measure passes, regulations will clarify this provision.
• A per-pupil funding cap is repealed in favor of a cap based on the maximum costs allowable for new construction.

To qualify, charter school operators must show that they have a track record for operating fiscally sound schools. A 50% local match is also required but can be borrowed from state bond funds and paid back over time.

Career-tech education

Proposition 1D reflects the growing interest in revitalizing career-tech or vocational education to help students-particularly those who may not be college bound-prepare for the more sophisticated requirements of today's job market. Advocates also say that hands-on career-tech programs encourage students to stay in high school.

To be eligible for the $500 million in facilities funding, school districts, county offices of education, and direct-funded charter schools must match state funds (50%) with their own funds or money from private industry groups or a joint powers authority (such as a regional occupational center). The local contribution can be borrowed from state bond funds and paid back over time. In addition, those seeking funding must develop a comprehensive career-tech plan and have an active career-tech advisory committee.

Only high schools can get new construction funds-up to $3 million per project. However, both high schools and joint powers authorities can receive modernization funding-up to $1.5 million per project.

Small high schools

In another effort to keep students in high school, reformers have supported a more personalized environment through smaller learning communities. Under Proposition 1D, up to $200 million can be used to support a state pilot project that encourages the creation of small high schools (500 students or fewer) or "schools within a school." Districts must provide a 40% local match.

"Green" construction

When school districts apply for funding under Proposition 1D, they must consider designs and materials that promote environmentally sound construction such as making efficient use of energy and water, or relying on recycled and less toxic materials.

In addition, districts can apply for incentive grants to implement green construction. The proposition allocates $100 million for this purpose. Districts have to provide matching funds: 50% (new) or 40% (modernization).

Costs of bonds are spread over time

Using general obligation (G.O.) bonds to finance public facilities is like a family taking out a mortgage to purchase a house. Long-term borrowing allows the state to spread the cost of facilities over time. Although state bonds do not require a tax increase, they do use revenues that could be spent for other purposes.

The cost of bonds depends on the interest rates in effect when they are sold and the time period over which they are repaid-typically 30 years for G.O. bonds. If Proposition 1D bonds were sold at an average interest rate of 5%, the LAO estimates the cost would be about $20.3 billion to pay off both principal ($10.4 billion) and interest ($9.9 billion). Thus, for every $1 borrowed, the cost of paying it back is almost $2. However, after adjusting for inflation, the LAO estimates the cost at considerably less: about $1.30 for each $1 borrowed.

As of July 1, 2006, the state had about $45 billion of infrastructure-related General Fund bond debt, according to the LAO. The measures on November's ballot-propositions 1B through 1E and Proposition 84-add up to $42.7 billion in bonds, almost doubling the current debt. If the proposed bond measures were all approved by voters and sold over a 10-year period, the cost would average roughly $2 billion annually, the LAO says. For Proposition 1D only, the average payment would be about $680 million per year. (To put these numbers in context, total General Fund expenditures are expected to be about $101 billion in 2006-07.)

Pros and cons of Proposition 1D

Proponents of the measure include Gov. Arnold Schwarzenegger, state Treasurer Phil Angelides, and a wide range of education and other groups, such as the California State PTA, the Association of California School Administrators (ACSA), the League of Women Voters of California, and the California Chamber of Commerce. They say there is a documented and continuing need for funds to modernize facilities, relieve overcrowded conditions, and ensure that schools are earthquake safe.

Opponents of the measure-such as the Libertarian Party, state Senator Tom McClintock, and the California Taxpayer Protection Committee-say the state has too much debt, schools have received enough bond money, and the measure funds untested programs. They also say Proposition 1D is unfair because all state taxpayers will have to pay off the bonds for several decades even though not all school districts will receive bond money.

Proposition 88: A Statewide Parcel Tax for Education Funding

This initiative would add a new section to the California Constitution to create an annual statewide tax of $50 on most real property parcels. Any parcel owner who lives on the parcel and is eligible for the state's homeowner's property tax exemption and is either age 65 or older or severely or permanently disabled would be exempt. Funds generated would be earmarked for specific programs in the state's public schools: class size reduction, instructional materials, school safety, facility-related grants, and a data system.

While some local communities have passed parcel taxes, this measure would mark the first statewide property tax since at least 1910. As with all statewide initiatives, passage requires a simple majority vote, rather than the two-thirds required for local parcel taxes.

The expressed intent of Proposition 88 is to raise needed funds for a K-12 education system wherein students rank "among the bottom six states in reading and math"-a situation "caused, in part, by inadequate resources for public education." However, some who agree with the need for more education resources see this initiative as small and piecemeal and say that it could inadvertently create the impression that school funding needs have been addressed. Others, including some taxpayer groups, see it as an incursion on the property tax protections created by Proposition 13, which voters passed in 1978.

Provisions of Proposition 88

Funds generated by the annual parcel tax would go into a new state special fund. The targeted annual total of $470 million, which would increase education funding by less than 1%, could only be used for stated purposes in the following annual amounts:

• K-12 class size reduction: $175 million.

The state currently allocates $1.8 billion annually for reducing K-3 class sizes to 20 or fewer students. Proposition 88 funds could be used broadly-for example, to reduce K-3 classes even more or for reductions in other grades. The Legislative Analyst's Office (LAO) estimates, as an example, that funds would be sufficient to reduce the average fourth grade class from 29 to 25 students statewide.

• Textbooks and instructional materials: $100 million.

Materials purchased must be "approved by the State Board of Education as consistent with the state curriculum frameworks and academically rigorous content standards." The current state allocation for new instructional material purchases is $400 million a year, or $66 per K-12 student. The LAO estimates that this would be enough to pay for one additional core textbook for about a quarter of the state's K-12 students annually.

• Safety and security of students, teachers, and staff: $100 million.

These funds could be used for community policing, gang-risk intervention, after-school and intersession student support and development, and school community violence prevention. According to the LAO, the state currently provides $548 million (or about $90 per student) for after-school programs, $97 million (about $40 per grade 8-12 student) for general school safety grants, and $17 million for competitive school safety grants.

• "Academic Success" facility grants: $85 million.

These grants, which could be used for any general purpose, would be distributed to school districts and charter schools at a flat rate of no more than $500 per student per year for students in schools in the top half of the state's Academic Performance Index (API) rankings. Moreover, school districts are only eligible if they have not received funding from the proceeds of a state general obligation bond for construction or modernization. (About 100 of California 's charter schools serving about 25% of all charter students and about 40 noncharter schools serving less than 1% of noncharter students would be eligible, according to LAO estimates.) Schools and districts receiving these grants would be prohibited from receiving facilities funding from future proceeds of state general obligation bonds unless the bond expressly makes them eligible. (This might appeal to districts unable to access state bond funds due to requirements such as providing a local match.)

• An integrated, longitudinal student achievement and teacher data system: $10 million.

The state has already invested funds for a student data system, currently in development, to evaluate program effectiveness. The LAO analysis notes, however, that virtually none of this funding goes to districts to collect and maintain the essential data. This initiative would provide such funding and require each district to participate. The $50 per parcel is a flat rate that would not change over time, regardless of inflation or changes in student enrollment. Funds generated would not be included in calculating the education funding levels guaranteed under Proposition 98 (expected to total about $55 billion in 2006-07).

Because the actual amount of funding raised by the parcel tax could vary from the targeted amount, funds for each purpose would be adjusted annually on a proportional basis. The funds for class size reduction, textbooks/materials, and safety/security would be apportioned to school districts, county offices of education, and charter schools on a per-student basis under a new formula to be created by the Legislature. The formula would be needs-based, taking into account students' socioeconomic status, English proficiency, and special needs such as disabilities. Proposition 88 funds would be subject to an annual, independent audit. Funds could not be used for administrative purposes; violations would incur criminal penalties, loss of credentials, or fines for school district administrators. Moreover, the funds could only supplement (not replace) existing state, federal, or local program funding.

A small amount of funds raised (no more than two tenths of one percent) would go to counties to defray the cost of implementing the tax. In addition, a portion of the money would be transferred to the state General Fund to offset any decrease in state personal or corporate income tax revenue that results from deductions taken as a result of this parcel tax.

Several legal ambiguities exist. For one, the measure does not specify how and to whom funds would be appropriated for the data system. The authors say this is deliberately left for the Legislature to determine. The intent is for all the funding to go to school districts, initially targeting those most in need of database development support.

Other ambiguities raise concerns among some educators about the severity of the penalties for misuse of funds. For example, it is unclear whether Proposition 88's class size reduction funds could be used to cover the shortfalls some districts face on costs associated with existing K-3 reductions-costs those districts currently pay out of their general purpose funds. This may require legal interpretation.

Opponents include anti-tax forces and some education groups

Opponents of the initiative include the League of Women Voters of California and several education groups, including the California State PTA, the Association of California School Administrators (ACSA), the California School Boards Association (CSBA), and the California Association of School Business Officials (CASBO). The Howard Jarvis Taxpayers Association, some other taxpayer groups, and a number of local chambers of commerce are also opposed, as is Gov. Arnold Schwarzenegger. (His gubernatorial opponent, Phil Angelides, had not yet taken a position as of this writing.)

While agreeing that education is under-funded and acknowledging the initiative's good intent, the opposition groups that are committed to increasing funds for schools say that Proposition 88 is the wrong remedy. The amount raised would be minimal, they say, allowing only tinkering around the edges while creating a "lottery effect"-the illusion that schools' comprehensive needs have been met. Lottery funding, thought by some to be a significant source of school money, accounted for about 1.3% of total funding for schools in 2005-06. Proposition 88 would provide about half what the lottery does.

Related concerns include the possibility that passage of Proposition 88 may distract voters from Proposition 1D-a major school bond measure also on the November statewide ballot-or affect support for local parcel tax elections, about half of which fail.

Some are opposed to Proposition 88's regressive nature-all parcels are taxed the same, whether owned by businesses or individuals, mansion owners or those of modest means. The taxpayer groups worry that the measure could lead to an erosion of Proposition 13's property tax protections by setting a precedent that could prompt other interests to seek similar taxes.

Other opponents dislike the measure's permanence, contrasting it to most local parcel tax levies, which specify a time span. Some are against statewide allocation of the funds by a needs-based student formula because it may mean that some local schools receive little or none of the funding.

Proponents emphasize dollars to classrooms

The sponsors of Proposition 88 are EdVoice and Taxpayers for Better Schools and Smaller Classes. Their ballot statement contrasts California 's relatively low level of school funding with its high academic expectations. It states that this parcel tax would "raise needed funds for student achievement while protecting property owners against runaway taxes." The campaign website emphasizes that spending decisions would be made by local schools, "not bureaucrats in Sacramento ."

Proponents also say that because money raised by the parcel tax would be kept separate from the education funding guaranteed by Proposition 98, this measure would ensure that the new dollars would be over and above that minimum funding requirement.

Acknowledging that the amount of funds raised would be relatively small, proponents-including State Superintendent of Public Instruction Jack O'Connell-say they recognize that Proposition 88 is not a panacea that will achieve all of their, or others', objectives for expanding education resources. Rather, the authors say the initiative just takes advantage of an opportunity to make a modest improvement in the amount of resources available for schools.

Proponents underscore the flexibility built into the measure, particularly the leeway it gives school districts for using the class size reduction funds to create smaller classes in any grade in any way they see fit.

EdSource is a not-for-profit 501©(3) organization established in California in 1977. Independent and impartial, EdSource strives to advance the common good by developing and widely distributing trustworthy, useful information thqt clarifies complex K-12 education issues and promotes thoughtful decisions about California 's public school system.

c Education Facilities Bond Act of 2006

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