November 9, 2009
Pursuant to Elections Code 9005, we have reviewed
a proposed constitutional amendment initiative relating to the use of
tax revenues for public education (A.G. File No. 09‑0046).
State and Local Revenues
Income and Sales Tax. The state
collects billions of dollars in General Fund revenues annually and uses
those funds to operate numerous state programs. The major sources of
revenue to the General Fund are the state personal income tax, the sales
and use tax, and the corporation tax. In 2008‑09, the state received
$78 billion from these three sources, totaling 93 percent of all state
General Fund revenues.
Local Property Tax. The California
Constitution authorizes local governments to levy property taxes. These
revenues are split among cities, counties, school districts, and
community college districts, with distribution among the various
entities varying by county. In 2008‑09, roughly $15.4 billion in local
property tax revenues were provided to school and community college
districts for general operations and administration. Local governments
have the option to increase property tax rates, if needed, to pay for
approved local facility bonds. Facility bonds for K-12 and community
college districts require 55 percent approval from the voters, while all
other bonds require two-thirds voter approval.
Other Property Taxes. Local
governments have a number of additional property-related options for
raising revenues. With a two-thirds vote, local governments can adopt a
parcel tax, which is a flat fee charged for each parcel of land. In
addition, local agencies (or a combination of agencies) can levy other
property taxes by establishing special facilities districts. A
two-thirds vote is required to create the new special district and
collect additional revenues.
State Educational Programs
Public Schools. The Constitution
establishes a public school system, including elementary schools,
secondary schools, technical schools, and state colleges. The
Constitution also establishes the University of California (UC) as a
public trust to be administered by the Board of Regents. In 2008‑09, the
state spent $45 billion in General Fund monies for the operation of K-12
schools, the California Community Colleges, the California State
University, and UC. In addition to General Fund monies, public education
programs also receive funding from the federal government, the state
lottery, local property taxes, and student fees.
Proposition 98. Adopted by the
voters in 1988 and amended in 1990, Proposition 98 establishes a set of
formulas that are used to annually calculate a minimum funding level for
K-12 schools and the community colleges. This funding level is provided
using state General Fund dollars and local property tax revenues. In
2008‑09, K-12 schools and community colleges received a total of
$49 billion in Proposition 98 funding.
This measure prohibits the use of income, sales,
or property taxes to pay for public schools or universities. (Because
corporation taxes are based on the amount of income each corporation
generates, the measure presumably also prohibits corporation taxes from
being used for public education.) It also explicitly prohibits the use
of these revenue sources to pay for textbooks in K-8 schools. Any
funding for public schools and universities would need to be provided
from other revenue sources.
The measure would have significant fiscal effects
at both the state and local level.
Elimination of Most Existing Funding for
Public Education. As a result of the restrictions specified in
the measure, the vast majority of existing funding for education would
be eliminated. State General Fund monies and local property taxes
account for the bulk of education funding. The only remaining sources of
revenue would be from the state lottery, student fees, and the federal
government. Absent any new sources of revenues, public education
programs would only be a fraction of their current size. However, the
extent that the state or school districts developed new revenues
allowable under the measure, public education funding could be replaced.
Unknown Use of Revenues. The
measure does not specify the use of the tens of billions in annual
revenues that could no longer be spent on education. These revenues
generally could be redirected to other state and local government
programs or returned to taxpayers as tax relief. The likely result would
be major shifts in state and local government budgeting.
Summary of Fiscal Effects
The measure would have the following major fiscal
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