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    string(39261) "Parcel Taxes for educaTion in ca lifornia Eric McGhE E and MarGa rEt WEs ton, Wi th rEsEa rch support froM da niEl K riM M The state legislature is contemplating a series of reforms to California’s fiscal and governance system. Among the most potentially consequential would be a constitutional amendment that would lower the vote thresh- old for passing local school parcel taxes from two-thirds to 55 percent. Because parcel taxes are one of the only local sources of school district revenue outside the limits imposed by Proposition 13 (which passed in 1978), the proposed change is a major focus of attention. Parcel taxes are highly concentrated in wealthy school districts, and par - ticularly in the San Francisco Bay Area. While a lower threshold would probably allow far more parcel taxes to pass, its impact might not be widespread. California’s experience with similar reforms does not suggest that parcel tax measures would be proposed in greater numbers or become prevalent outside of the Bay Area. supported with funding from the s. d. B echtel, Jr. fo undation sEp tE MBEr 2013 AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 2 inTroducTion The legislature this year is considering several changes to California’s tax law. Among the most potentially consequential is a pair of constitutional amendments (SCA 3 and SCA 11) that would lower the vote threshold for passing local school parcel taxes from two-thirds to 55 percent. In a May 2013 PPIC Statewide Survey, a bare majority of Californians expressed support for such a change. A lower threshold may become espe- cially important to wealthier districts under the new school finance system, which will direct more state aid to districts serving disadvantaged students. 1 Until the late 1970s, school districts in California—like districts in other states—financed their operations through local property taxes. Two events changed California’s school fi - nance system dramatically, shifting the burden of financing schools from districts to the state and limiting local districts’ revenue-raising authority: In 1971, the state Supreme Court ruled in Serrano v. Priest that differences in school funding due to differences in wealth violated the state constitution. This led to the creation of a unique “revenue limit” for each district—a per pupil entitlement financed by property tax revenue and state aid. Then, in 1978, voters passed Proposition 13, which capped property taxes and limited increases for each owner. This severely curtailed districts’ ability to raise rev - enue and resulted in huge cuts for local districts. Much of the lost revenue was replaced with funds from the state government, which now provides the majority (58%) of school district revenue. School districts do have two revenue options: they can raise funds through parcel taxes and construction bonds. 2 Unlike a traditional property tax, which is based in part on es- timated property values, a parcel tax is assessed on the land itself.3 For the most part, it is a regressive tax: everyone typically pays the same amount regardless of property value.4 The authority to raise parcel taxes stems from Proposition 13 itself and was clarified in the 1982 state Supreme Court decision in City and County of San Francisco v. Farrell (32 Cal. 3d 47). 5 Parcel taxes, as a special district tax, must be approved by two-thirds of local voters and can generally be used by school districts for any purpose, including general operating expenses. The second revenue option for school districts, construction bonds, can be used only for infrastructure and technology projects. The vote threshold for these bonds was low- ered to 55 percent in November 2000, when voters approved Proposition 39. The lower vote threshold has led to a greater number of successful bond measures. If a 55 percent threshold has a similar impact on the approval of parcel tax measures, school districts might gain significant flexibility in covering day-to-day expenses. This report provides context for the proposal to lower the parcel tax vote threshold. We begin by examining the characteristics of the districts with parcel tax revenue and those in which parcel taxes would have been approved if the vote threshold had been 55 percent. Then, using the recent changes to the school construction bond threshold as a case study, we assess the potential impact of a change to the parcel tax threshold. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 3 San Francisco Bay Area A lam eda 9 of 18 52 809 Contra Costa 9 of 18 54 447 Marin 15 of 19 99 1,318 Sa n Fran cisco 1 of 1 100 644 Sa n Mateo 14 of 23 40 674 San ta Clara 19 of 31 55 395 Sonoma 15 or 40 27 242 Other coastal counties Lo s Angeles 7 of 80 4 578 Mon terey 1 of 24 3 157 San ta Bar bara 2 of 22 22 125 San ta C ruz 3 of 11 25 494 Vent ura 1 of 20 3 231 Inland counties Mono 1 of 2 70 606 P lacer 1 of 16 6 1,032 I nyo 1 of 5 30 785 Number of parcel tax districts in the county Percent of countywide student enrollment in parcel tax districts Average parcel tax revenue ($/student) school di sTr icT P arcel Taxes Despite the fact that parcel taxes are one of the only local revenue options allowed by Proposition 13, they are not widespread. Parcel taxes comprise a very small share (less than 1%) of statewide K–12 revenue, totaling approximately $317 million in 2010–11. They are primarily passed in school districts in the San Francisco Bay Area but are also prevalent along the southern coast, and there are a few parcel tax districts in inland counties—Davis Joint Unified, Mammoth Unified, and Tahoe-Truckee Joint Unified. On average, parcel taxes provide $584 per pupil in districts that have passed them, though the amount ranges from about $25 to $4,500 per pupil (see Table 1). 6 Ta b l e 1. school disTricT Pa rcel Ta xes by counTy , 2010 –11 SourCe: PPiC S chool Finance Model (2013). n o Te: T able includes only school districts that collected parcel tax revenue in 2010 –11. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 4 Passed a measure No measure passed, but at least one cleared 55% No measure cleared 55% No measures proposed Student demographics Free and reduced- pr ice lu nch (%) 36 4 0 7 0 57 E nglish Learner (%) 20 21 31 23 W hite (%) 34 31 14 29 Income and per pupil funding Aver age m edian h ouseh old income ($) 85 ,115 76,926 53,188 60,375 Aver age other local revenue ($ /pupil) 666 353 277 198 Aver age total revenue ($ /pu pil) 8,592 7,481 8,957 7,521 Almost all parcel tax measures (87%) involve a simple flat fee that applies to all parcels. A small share of measures propose variable rates that hinge on property size or use (e.g., single-family homes, businesses, or undeveloped land). However, a recent court decision has cast doubt on the legal status of these variable rates, at least as they apply to businesses. 7 The parcel taxes proposed by school districts have tended to be more self-limiting than those proposed by other types of jurisdictions. Since 1987, the legislature has explicitly permitted school districts to exempt taxpayers age 65 or older, and later it added exemp - tions for disabled residents. 8 Most school parcel tax measures have taken advantage of the senior exemption, and a small number of others have used the disability exemption as well. 9 Nine in ten school parcel taxes have also included a time limit, usually between four and ten years, after which the tax must be renewed. Only 30 percent of non-school parcel tax proposals have included a similar time constraint. As might be expected, support for parcel taxes is higher in wealthier districts, which have more disposable income to spend on schools. 10 Median household income averages more than $85,000 in districts with parcel taxes, compared with about $60,000 in districts that have never proposed a parcel tax (Table 2). 11 Furthermore, 44 percent of districts with me - d ian household incomes in the top 10 percent have passed parcel taxes, compared with just 7 percent of districts with median household incomes in the bottom 90 percent. Districts with parcel taxes have fewer low-income students, English Learners, and students of color. 12 Districts that have passed parcel taxes are also more likely to be smaller and have fewer school-age children per household; these districts can propose lower parcel taxes and get the same benefit, since the revenue is distributed among fewer students. 13 Ta b l e 2 . changing Pa ssage Th reshold To 5 5 Pe rcenT may have liT Tl e imPa cT on inequaliTi es SourCe: PPiC S chool Finance Model (2013); American Community Survey 5-Year es timates of in come in the Past 12 Months; en rollment in Public Schools by et hnic de signation, 2010 –11, California de partment of e ducation. n o TeS : Averages are weighted by district average daily attendance. d i stricts with parcel taxes are statistically significantly different across all characteristics (0.01 level) from districts that have never proposed a parcel tax. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 5 A lower threshold might not do much to bridge these basic inequalities. As Table 2 shows, districts that have passed parcel taxes closely resemble those that proposed a tax that cleared 55 percent but not two-thirds. 14 By contrast, districts that proposed a tax that received less than 55 percent of the vote are far more disadvantaged; the group includes several large urban districts, including Hesperia Unified, Long Beach Unified, Los Angeles Unified, San Diego City Unified, and Vacaville Unified. Other studies have found similar results when comparing districts that passed parcel taxes with those that have not. 15 Districts with parcel taxes are not only better off than other districts but also benefit from other local revenues and have greater levels of per pupil funding.16 More than a third of all districts with parcel tax revenue are “basic aid” districts—their share of property tax rev - enue exceeds their revenue limit entitlements and they get to keep these excess revenues. 17 By contrast, only 10 percent of districts that have never proposed or failed to pass a par- cel tax measure are basic aid districts. 18 These excess property taxes provide, on average, an additional $322 per pupil to districts with parcel taxes compared to $83 per pupil in other districts. These districts also raise more local revenue from other sources, includ- ing the sale or lease of unused buildings or lands, and student fees. Although districts with parcel taxes have higher revenues than most other districts, they may also have higher costs. Districts with parcel taxes (as well as districts in which measures have garnered 55 percent of the vote) have higher minimum teacher salaries, which in part reflect the labor markets in which they compete for teachers. 19 Another way to examine costs is to look at regional labor markets. For example, salaries are high- er in areas with higher wages for college-educated non-teachers. 20 When total funding is adjusted using a regional wage index, differences in average funding between districts with parcel taxes and those that have never proposed them disappear. 21 In other words, parcel tax districts largely operate in high-wage areas and need extra revenue to cover these higher salaries. The San Francisco Bay Area has been at the center of the parcel tax movement since the passage of Proposition 13. Several key early court decisions concerned tax policy in San Francisco, and the Bay Area has been home to most of the parcel tax measures over time. 22 Since 1995, the region has accounted for three of every four parcel tax measures offered by schools, and these measures have been much more likely to pass in the Bay Area than in other parts of California. Overall, the Bay Area was home to more than 80 percent of school districts with parcel tax revenue in 2010–11. It is quite possible that the success of parcel taxes in the Bay Area in part reflects the far more liberal attitudes toward taxation and government spending in the region compared to any other part of the state. 23 It might also reflect mimicking, where a district views a parcel tax as more acceptable if neighboring districts have passed one. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 6 Construction bondsParcel taxes assessing Th e im Pa cT of a lo wer Threshold Since 1995, parcel taxes have accounted for 22 percent of all local revenue measures.24 Almost half of parcel tax measures have been put on the ballot by school districts; about six in ten of these district measures have been approved. About 10 percent of each type of district (elementary, high school, and unified) has passed parcel taxes. 25 Overall, voters in 105 districts have approved parcel tax measures, while 67 other districts have put at least one measure on the ballot. If the parcel tax vote threshold had been 55 percent rather than two-thirds, parcel taxes would have been approved in more than 60 percent of the 67 districts that put measures on the ballot that failed. As we have seen, a handful of districts have repeatedly placed parcel tax measures on the ballot. Of the districts that proposed parcel tax measures from 2007 to 2011, only 13 percent had never put a parcel tax on the ballot since 1995. 26 There was no similar pat- tern among districts that did and did not put the other main source of revenue, construc- tion bonds, on the ballot: 72 percent of the districts that proposed bond measures from 2007 to 2011 had proposed a bond measure since 1995, but so had 62 percent of districts that did not propose a bond measure during the same recent period. Figure 1 shows the consequences: the geographic scope of parcel taxes has been far more limited than that of construction bonds. fig u r e 1. school consTr ucTi on bonds have had a much wider geograPh ic range Th an P a rcel T a xes SourCeS: California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/Ce dA .html; un ited States Census (school district shapefiles). n o Te: T he map on the left shows the territory covered by school districts that have passed at least one school construc - tion bond since 1995; the map on the right shows the same for parcel taxes. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 7 Number of bond measures 93 porP Passage rate Number of bonds Passage rate $ state bonds passed 1987–88 1989–90 1991–92 1993–94 1995–96 1997–98 1999–00 2001–02 2003–04 2005–06 2007–08 2009–10 0 50 100 150 200 250 300 0 10 20 30 40 50 60 70 80 90 100 $800M $1.6B $2.8B $9.2B $3B $13B $12.3B $10.48B Of the 40 percent of parcel taxes that failed, three-quarters would have passed if the vote t hreshold had been 55 percent, which would have boosted the overall passage rate from 59 to 89 percent. However, the geographic scope of parcel taxes would not have been much different: roughly three-quarters of these would-be winners were proposed in the Bay Area, along with 83 percent of the ones that actually passed. Since districts have little reason to put a measure on the ballot that is likely to lose, the passage rate is probably inflated—it cannot include measures that are not proposed. Under a lower threshold, more measures are likely to be proposed, perhaps in a wider range of geographic areas. However, if districts get ambitious and propose measures with lower likelihoods of success, the passage rate might actually fall. a comparison case: school construction bonds To get a sense of potential outcomes, we can look at what happened after the passage of Proposition 39, which lowered the threshold for passing school construction bonds from two-thirds to 55 percent. Construction bonds are not a perfect comparison, but they are similar to parcel taxes in many important ways: they apply to school districts, they in- volve raising revenue, and their passage rate was altered in exactly the way proposed for parcel taxes. 27 Figure 2 shows the number of school bonds on the ballot and their passage rate for each two-year period between 1987 and 2010. 28 The number of measures placed on the ballot increased between 1997 and 2002, likely due to a confluence of factors: increased need for school facilities, new state bond money, a booming economy, and (after 2000) the changed threshold. 29 This number has fallen since 2002, probably due to both a decline in state funding (no statewide bond measure has passed since 2006) and a decrease in the school- age population. Moreover, because school construction typically lasts for 20 to 30 years, the need for new facilities may have been met by the high activity earlier in the decade. figure 2. a lower Th reshold increased Th e Pa ssage raTe b uT noT Th e number of school bond measures SourCeS: Kim ru eben, Tax Policy Center (1987–2000) (for a similar application of these data, see Kim ru eben and Pedro Cerdan, Fiscal Effects of Voter Approval Requirements on Local Governments [PPiC , 2003]); California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/C e d A .html (1995–2010). n o Te: n u mbers include school bonds of all kinds. We have no way to identify bonds proposed before Proposition 39 that would have qualified for the new threshold had the proposition been in effect. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 8 0 10 20 30 40 50 60 70 Before Proposition 39 After Proposition 39 Less than 55% 55% to two-thirds Greater than two-thirds Bond passage rate Percent voting yes Although districts have not proposed more measures, they appear to have asked for more money in each bond measure since the vote threshold was lowered: the median amount requested has increased by 38 percent in constant 2011 dollars (from $29 million to $40 million), while the median for other types of supermajority bond measures has actually declined (from $32 million to $27 million). The numbers are very similar when school bond amounts are calculated on a per pupil basis and for the measures that actually passed. 30 Districts seem to have been very strategic about the type of measures they have pro- posed, because failed measures under the new threshold have been rare. Figure 3 shows that the share of measures clearing the new 55 percent threshold but not the old one of two-thirds has increased since Proposition 39 (from 34% to 47%), while the share that would have won anyway has declined (from 57% to 36%). The share of complete losers— measures falling below the 55 percent threshold—has also increased, from 9 p ercent before to 17 percent after, but it remains low. figure 3. afTer Th e Th reshold was lowered, more bonds Pa ssed SourCe: California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/Ce dA .html (1995–2010). Overall, Proposition 39 produced a radical increase in the number of successful bond measures: as Figure 2 shows, there was a sudden increase in the passage rate that has largely sustained itself. But this does not reflect a broader shift in public attitudes toward government taxation or spending, since (as Table 3 shows) the passage rates of other fis- cal measures did not change over the same period of time. The average vote share for school construction bonds declined somewhat even as the passage rate jumped 19 points. Moreover, the average vote share was very similar for two other types of fiscal measures that are still subject to a two-thirds vote requirement: parcel taxes and bonds that are not covered by Proposition 39 and thus still require a two-thirds vote. The passage rates for these other types of measures has actually declined—quite steeply in the case of par- cel taxes (12 percentage points). Because more parcel tax measures have been placed on the ballot recently, the total number of successful measures has actually increased even though the passage rate has declined. Indeed, the recent increase in parcel tax measures may be a reflection of the decline in state funding over the past few years. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 9 Average pass rate Before Prop 39 After Prop 39 Change Before Prop 39 After Prop 39 Change Average yes vote School constru ction bonds 58% 77% +19% 68 % 63% -5% Oth er bonds 60 56 -4 65 66 +1 School parcel taxes 6 9 57 -12 70 67 -3 Ta b l e 3 . only school consTr ucTi on bonds Pa ssed aT a higher raTe a fTe r ProP osiTio n 39 SourCe: California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/Ce dA .html. n o Te: o f t he three types of revenue measures, only school bonds were affected by the threshold change from two-thirds to 55 percent. About 14 percent of post– Proposition 39 school bonds did not qualify for the new threshold and contin - ued to require a two-thirds vote to pass. We have no way to identify bonds proposed before Proposition 39 that would have qualified for the new threshold had the proposition been in effect. Thus, we included all supermajority bonds in both periods to make the comparison consistent. When these two-thirds school bonds are excluded from the post–Prop - osition 39 period, the vote share is the same but the passage rate increases to 83 percent. conclusion Although parcel taxes have offered one of the only ways for school districts to increase their funding outside the strictures of Proposition 13, they account for less than 1 percent of statewide school revenue. About six in ten proposed parcel taxes have been approved, largely in small, wealthy school districts in the San Francisco Bay Area. Lowering the threshold for passing parcel taxes from two-thirds to 55 percent might raise this approval rate. But would it encourage a broader range of districts to propose such taxes in the first place? A similar threshold change for school construction bonds greatly improved the passage rate without necessarily increasing the total number of measures. Moreover, the districts that would have benefited most from a lower threshold in the past have been very similar to those that actually passed a tax. So it is not clear that a 55 percent threshold would expand the reach of parcel taxes to new areas of the state or to more disadvantaged students. Arguments to the contrary depend heavily on questionable assumptions. 31 Even if a lower threshold benefits only wealthy districts, it might serve to smooth the transition to a new school finance system, which has been overhauled to better target dis - tricts with needy students. A lower threshold could help make this system acceptable to these wealthier areas by giving them more control over their own finances. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 10 noTes 1 for more on this new funding formula, see he ather ro se and Margaret Weston, California School District Revenue and Student Poverty: Moving Toward a Weighted Pupil Funding Formula (p pic, fe bruary 2013). 2 s c hool districts are able to raise other funds, including voluntary contributions from parent-teacher associa- tions and education foundations, the sale or lease of unused buildings, sales or publications, interest on investments, and some student fees. i n 2 011–12, districts raised an average of $3.1 billion in non–parcel tax local revenue. 3 t h e statewide 1 percent property tax is assessed on land when it is purchased and the tax is based on the purchase price. p r oposition 13 limits the increase in a property’s assessed value (the value on which it is taxed after purchase) to 2 percent per year. t h e difference in assessed value and market value may be large for land that has been held by one family or corporation for a long time. 4 t h ere has been recent litigation on this point, discussed below. a l so, some school districts have experimented with alternatives to the flat fee per parcel of land, including charging a flat fee per square footage or charging different fees based on the use of the land. f o r example, some districts have imposed different fees for va - cant lots, multi-unit residential lots, and commercial lots. 5 s p ecifically, the decision held that parcel taxes are “special” taxes under p r oposition 13. p r oposition 13 per- mits local jurisdictions to raise special taxes by a two-thirds vote of the people. f o r more details see Eric J. Brunner, “ th e p a rcel t a x,” in School Finance and California’s Master Plan for Education, ed. Jon s o nstelie and p e ter r i chardson ( p pic , 2 001), pp. 187–212. 6 s e veral school districts report parcel tax revenues of about $1 per pupil that appear to be from measures that have expired. 7 t h e f i rst d i strict c o urt of a p peals ruled in Borikas v. Alameda Unified School District that school districts do not have the authority to propose variable rates and the state s u preme c o urt recently refused to hear an appeal. t he legislature could overturn this decision: though some argue that variable rates are forbidden by p r oposition 13, the issue has traditionally been handled as a statutory and not a constitutional matter. th us, the law can be changed by the legislature with a simple majority and no follow-on vote by the general public. l e gislation ( aB 5 9) has been introduced in the a s sembly to explicitly permit such taxes, but has not yet passed. t h e legislature has tinkered with permissible exemptions from time to time in this way. f o r ex- ample, in 1990 the legislature permitted park districts to tax unimproved land at a lower rate than improved land, which was later extended to all local districts except K–12 school districts through s B 1 58 ( ch apter 70, st atutes of 1991). t h e most recent change was s B 8 74 ( ch apter 791, s t atutes of 2012), which allowed an ex- emption of persons of any age receiving ssdi benefits with income below 250 percent of the poverty line. 8 s e e a B 1 140 ( ch apter 100, s t atutes of 1987) and a B 3 85 ( ch apter 41, s t atutes of 2006). 9 a lt hough the senior exemption in par ticular seems intended to improve the odds of passage, the passage rate for measures that mention the exemption is about the same as for those that do not. 10 B ree l a ng and Jon s o nstelie, “ th e p a rcel t a x and the p r ice of p u blic s c hool Quality,” unpublished manu- script, d e cember 2012. 11 d i fferences in median income persist (though are smaller in magnitude) once income is adjusted for the dif - ferences in cost of living across districts. 12 d i stricts with parcel taxes have higher shares of students of a s ian descent, including f i lipinos and p a cific i slanders, and a higher proportion of students who identify with multiple races. h o wever, they have lower shares of a f rican a m erican and l a tino students and higher shares of white students. 13 l a ng and s o nstelie (forthcoming) use the number of students per parcel to define district residents’ tax price—the marginal increase a voter must pay for an additional unit of education. t h ey find that this measure of tax price is a significant negative predictor of the likelihood of passing a parcel tax. 14 B ecause parcel tax revenue is reported by district and is not audited, there are some uncertainties. t h e table includes six districts (Knightsen Elementary, Mc sw ain u n ion Elementary, Menlo p a rk c i ty Elementary, Mojave un ified, s a n d i eguito u n ion h i gh, and t h ree r i vers u n ion Elementary) that passed parcel taxes between 1996 and 2011 but do not report parcel tax revenue in 2010 –11. i n m ost instances, these parcel taxes have expired. i t also includes six districts ( h ayward u n ified, h i llsborough c i ty Elementary, l om a p r ieta Joint u n ion Elementary, p a cifica, and s a nta Barbara c i ty s c hools) that report parcel tax revenue but for whom we do not have a record of a parcel tax election between 1996 and 2011. s o me of these districts have longstanding parcel taxes and hold periodic votes to override the Gann limit (a spending ceiling introduced in the 1970s) so that they can spend their parcel tax revenue. f i nally, it excludes three districts ( fr emont u n ified, l o s Gatos- sa ratoga Joint u n ion h i gh, and s u nnyvale) that passed parcel taxes in 2010 but did not receive revenues until after the 2010 –11 school year. 15 s e e Brunner, “ pa rcel t a x”; l i sa c h avez and l o uis f r eedberg, “ ra ising r e venues l o cally: p a rcel t a xes in ca lifornia s c hool d i stricts 1983 –2012” (Ed so urce, 2013). AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 11 1 6 d i stricts that have never cleared 55 percent have the highest levels of funding largely because they have the most disadvantaged students, and state and federal programs overwhelmingly target disadvantaged stu- dents. h eather r o se and Margaret Weston, California School District Revenue and Student Poverty: Moving Toward a Weighted Pupil Funding Formula ( p pic , 2 013). 17 i f p roperty taxes are insufficient to meet a district’s entitlement, the state fills the gap; on average, property taxes comprise 35 percent of districts’ revenue limits and the state provides the rest. But if a district’s share of property taxes exceeds the revenue limit entitlement, it retains the excess revenue. f o r more on the rev- enue limit system, see Margaret Weston, Funding California Schools: The Revenue Limit System ( p pic , 2 010). se e Weston, Basic Aid School Districts ( p pic , 2 013), for more information about basic aid school districts. 18 t h e exact percentages of basic aid by parcel tax status are 10 percent (79/790) that never proposed a tax, 8 percent (2/24) that proposed a tax but got less than 55 percent of the vote, 14 percent (6/24) of districts that proposed a tax and got more than 55 percent of vote, and 37 percent (39/105) of districts that passed a tax. c o nversely, 30 percent (37/126) of basic aid districts have passed a parcel tax, 2 percent (2/126) have proposed a tax but failed to get 55 percent, 5 percent (6/126) have proposed and gotten more than 55 per - cent, and 63 percent (79/126) have never proposed a parcel tax. 19 M inimum salaries average $43,000 in districts that have passed or cleared 55 percent compared to $40,000 in districts that did not clear 55 percent and $41,000 in districts that have never proposed a parcel tax. 20 h e ather r o se and r i a s e ngupta, Teacher Compensation and Local Labor Market Conditions in California: Implications for School Funding ( p pic , 2 007). 21 i n u nadjusted terms as t a ble 2 displays, districts that have passed parcel taxes have average funding levels that are about $1,000 per pupil greater than districts that have never proposed a parcel tax. o n ce adjusted, this difference decreases to about $100 per pupil and is no longer statistically significant. 22 B runner, “ pa rcel t a x”; l a ng and s o nstelie, “ th e p a rcel t a x and the p r ice of p u blic s c hool Quality.” 23 E ric McGhee and d a niel Krimm, “ ca lifornia’s p o litical Geography” ( p pic , 2 012). 24 W hile we have some data for some types of measures in elections as far back as 1987, most of our data on lo - cal elections come from the c a lifornia Elections d a ta a r chive, which currently has records for the years 1995 through 2011 only. 25 o f t he 545 elementary districts, 62 have passed parcel taxes, as have 10 of 82 high school districts and 33 of 335 unified districts. 26 W e chose the period of 2007 to 2011 because it offered a large enough range of time to give most districts an opportunity to place a measure on the ballot if they wanted, while also offering plenty of time since the begin - ning of the data set in 1995. 27 t h ere are a number of differences between parcel taxes and construction bonds. c o nstruction bonds sup- ply long-term capital financing, while parcel taxes fund yearly operating expenses. s c hools receive match- ing funds from the state for construction projects but not for parcel taxes, and a statewide bond measure to finance the match has passed almost every two years between 1986 and 2006. ( th ere was no bond measure on the ballot in 2000, the year that p r oposition 39 was passed. t h e only failed bond measure was p r oposition 1B in 1994.) s o s chool districts have had incentives to put bond measures on the ballot, as well as an argu - ment for why they should be passed, regardless of the mood of the electorate in other respects. 28 c o mpanion legislation to p r oposition 39, passed by the legislature, required qualifying measures to be pro - posed at an otherwise regularly scheduled election. a s a p ractical matter, virtually all of the measures since pr oposition 39 have been proposed at regularly s che dule d st atewide primary or general elections in even- numbered years, though a handful have been proposed at regularly scheduled odd-year elections. We have combined pairs of years in order to make the numbers before and after the reform as comparable as possible. 29 f o r more on proposal and passage rates over time, see Kim r u eben and p e dro c e rdan, Fiscal Effects of Voter Approval Requirements on Local Governments ( p pic , 2 003). 30 W e only have data on school enrollment for 2010, so the per pupil calculation cannot incorporate differential growth rates of school districts over time. l i kewise, we cannot calculate the per pupil value for 88 school dis - tricts that no longer existed in 2010 because they had been split or merged with other districts. 31 o n e recent study by i m re Meszaros concluded that as many as two-thirds of districts could have even odds of passing a parcel tax under a lower threshold. But this estimate is almost certainly far too high. Meszaros himself notes that the conclusion depends heavily on the assumption that a district’s decision to propose a parcel tax is effectively random. i f i t is not random—if, as we have noted, districts are very strategic about putting such measures on the ballot and will not do so if the odds of passage are not good—then the pro - jected passage rate offered by Meszaros will be exaggerated, and probably to a significant degree. s e e i m re Meszaros, “ th e p o litical Economy of s c hool d i strict p a rcel t a x Elections” ( ph . d. d issertation, u n iversity of so uthern c alifornia, 2010). AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 12 acknowledgmenT s We thank Eric Brunner, Heather Hough, Mary Perry, Kim Rueben, Jon Sonstelie, and Paul Warren for their helpful comments and suggestions and Mary Severance, Kate Reber, and Jenny Miyasaki for editorial support. A special thanks to Tom Duffy of the Coalition for Adequate School Housing, who provided a wealth of information about the history of bond elections in California. relaTed PPic P ublicaTi ons PPIC Statewide Sur vey: Californians and Education (ap r il 2013) Basic Aid School Districts ( se pte m b e r 2013) School Finance ( nove mber 2012) Funding California Schools: The Revenue Limit System (Ma rch 2010) AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 13 PPic exPe rTs er ic m cghe e Research Fellow 415-291-4439 mcghee@ppic.org exp ertise • e l ections  – C alifornia redistricting reform   – S tate and local voter initiatives   – V oting behavior • l e gislative behavior   – l e gislative organization   – r e sponsiveness to public opinion   – S tate term limits • Political participation • P olitical parties and party polarization • Polling and public opinion ed ucation P h. d. ( 2003) and M.A. (1998), political science, u n iversity of California, Berkeley margaret we ston Research Fellow 916-440-1134 weston@ppic.org ex pertise • K -12 education   – S chool finance   – C ategorical programs ed ucation P h. d. ( expected in 2014), school organization and education policy, u n iversity of California, d a vis; M.P.P. (2008), public policy, u n iversity of Michigan; M.A. (2006), teaching, Johns Hopkins u n iversity Patrick murphy Director of Research and Senior Fellow, Thomas C. Sutton Chair in Policy Research 4 15-291-4445 m urphy@ppic.org ex pertise • K -12 education   – St ate e d ucation Agencies   – C ommon Core i mple mentation • Higher education    – C ommunity college financing • i l licit drug policy  • B udget and tax policy ed ucation P h. d. (1996), political science, u niversity of Wisconsin, Madison; M.P.A. (1986), public administration, u n iversity of Texas, Austin Paul warren Research Associate 916-440-1124 warren@ppic.org ex pertise • K -12 school finance   – P roposition 98   – C ategorical programs • K-12 testing and accountability   – St ate assessment programs   – S tate and federal accountability programs ed ucation M .P.P. (1982), Kennedy School of Government, Harvard u n iversity AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 14 PPic board of d irecTo rs Donna Lucas, Chairch ief Executive of ficer lu cas p u blic a f fairs Mark Baldassare pr esident and c Eo pu blic p o licy i n stitute of c alifornia Ruben Barrales pr esident and c EoGr o W Elect María Blanco Vice p r esident, c i vic Engagement ca lifornia c o mmunity f oun dation Brigitte Bren at torney Walter B. Hewlett ch air, Board of d i rectors William and f lo ra h e wlett f oun dation Phil Isenberg c hair del ta s tewardship c ouncil Mas Masumoto au thor and f a rmer Steven A. Merksamer se nior p a rtner nie lsen, Merksamer, p a rrinello, Gross & l e oni, llp K im Polese c hairman cl ear st reet, i nc. Thomas C. Sutton re tired c hairman and c E o pa cific l i fe i n surance c om pany Copyright © 2013 Public Policy in stitute of California. All rights reser ved. San Francisco, CA The Public Policy i n stitute of California is dedicated to informing and improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. PP iC i s a private operating foundation. i t d oes not take or support positions on any ballot measures or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office. PP iC was estab- lished in 1994 with an endowment from William r . H ewlett. Short sections of text, not to exceed three paragraphs, may be quoted without written permission provided that full attribution is given to the source. re search publications reflect the views of the authors and do not necessarily reflect the views of the staff, officers, or Board of d i rectors of the Public Policy i n stitute of California. PUB L I C POL I Cy I nS T I T U T E Of CA L IfO RnI A 50 0 W A S H I n g T O n S T R E E T , SU I T E 600 • S An f R A nC I S C O , C A 94111 P 415.291.4400 • F 415.291.4401 • www.ppic.org P P I C S AC R A M E nT O C E nT E R • S E nA T O R O f f I C E B U I L D I n g 1121 L STREET , S U ITE 801 • S A C R A M E nT O , C A 9 5 814 P 916.4 4 0.1120 • F 916.4 4 0.1121 additional rEsourcEs rEl atEd t o K–12 Education ar E a Va il a BlE at WWW . ppic.or G"
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  string(39261) "Parcel Taxes for educaTion in ca lifornia Eric McGhE E and MarGa rEt WEs ton, Wi th rEsEa rch support froM da niEl K riM M The state legislature is contemplating a series of reforms to California’s fiscal and governance system. Among the most potentially consequential would be a constitutional amendment that would lower the vote thresh- old for passing local school parcel taxes from two-thirds to 55 percent. Because parcel taxes are one of the only local sources of school district revenue outside the limits imposed by Proposition 13 (which passed in 1978), the proposed change is a major focus of attention. Parcel taxes are highly concentrated in wealthy school districts, and par - ticularly in the San Francisco Bay Area. While a lower threshold would probably allow far more parcel taxes to pass, its impact might not be widespread. California’s experience with similar reforms does not suggest that parcel tax measures would be proposed in greater numbers or become prevalent outside of the Bay Area. supported with funding from the s. d. B echtel, Jr. fo undation sEp tE MBEr 2013 AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 2 inTroducTion The legislature this year is considering several changes to California’s tax law. Among the most potentially consequential is a pair of constitutional amendments (SCA 3 and SCA 11) that would lower the vote threshold for passing local school parcel taxes from two-thirds to 55 percent. In a May 2013 PPIC Statewide Survey, a bare majority of Californians expressed support for such a change. A lower threshold may become espe- cially important to wealthier districts under the new school finance system, which will direct more state aid to districts serving disadvantaged students. 1 Until the late 1970s, school districts in California—like districts in other states—financed their operations through local property taxes. Two events changed California’s school fi - nance system dramatically, shifting the burden of financing schools from districts to the state and limiting local districts’ revenue-raising authority: In 1971, the state Supreme Court ruled in Serrano v. Priest that differences in school funding due to differences in wealth violated the state constitution. This led to the creation of a unique “revenue limit” for each district—a per pupil entitlement financed by property tax revenue and state aid. Then, in 1978, voters passed Proposition 13, which capped property taxes and limited increases for each owner. This severely curtailed districts’ ability to raise rev - enue and resulted in huge cuts for local districts. Much of the lost revenue was replaced with funds from the state government, which now provides the majority (58%) of school district revenue. School districts do have two revenue options: they can raise funds through parcel taxes and construction bonds. 2 Unlike a traditional property tax, which is based in part on es- timated property values, a parcel tax is assessed on the land itself.3 For the most part, it is a regressive tax: everyone typically pays the same amount regardless of property value.4 The authority to raise parcel taxes stems from Proposition 13 itself and was clarified in the 1982 state Supreme Court decision in City and County of San Francisco v. Farrell (32 Cal. 3d 47). 5 Parcel taxes, as a special district tax, must be approved by two-thirds of local voters and can generally be used by school districts for any purpose, including general operating expenses. The second revenue option for school districts, construction bonds, can be used only for infrastructure and technology projects. The vote threshold for these bonds was low- ered to 55 percent in November 2000, when voters approved Proposition 39. The lower vote threshold has led to a greater number of successful bond measures. If a 55 percent threshold has a similar impact on the approval of parcel tax measures, school districts might gain significant flexibility in covering day-to-day expenses. This report provides context for the proposal to lower the parcel tax vote threshold. We begin by examining the characteristics of the districts with parcel tax revenue and those in which parcel taxes would have been approved if the vote threshold had been 55 percent. Then, using the recent changes to the school construction bond threshold as a case study, we assess the potential impact of a change to the parcel tax threshold. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 3 San Francisco Bay Area A lam eda 9 of 18 52 809 Contra Costa 9 of 18 54 447 Marin 15 of 19 99 1,318 Sa n Fran cisco 1 of 1 100 644 Sa n Mateo 14 of 23 40 674 San ta Clara 19 of 31 55 395 Sonoma 15 or 40 27 242 Other coastal counties Lo s Angeles 7 of 80 4 578 Mon terey 1 of 24 3 157 San ta Bar bara 2 of 22 22 125 San ta C ruz 3 of 11 25 494 Vent ura 1 of 20 3 231 Inland counties Mono 1 of 2 70 606 P lacer 1 of 16 6 1,032 I nyo 1 of 5 30 785 Number of parcel tax districts in the county Percent of countywide student enrollment in parcel tax districts Average parcel tax revenue ($/student) school di sTr icT P arcel Taxes Despite the fact that parcel taxes are one of the only local revenue options allowed by Proposition 13, they are not widespread. Parcel taxes comprise a very small share (less than 1%) of statewide K–12 revenue, totaling approximately $317 million in 2010–11. They are primarily passed in school districts in the San Francisco Bay Area but are also prevalent along the southern coast, and there are a few parcel tax districts in inland counties—Davis Joint Unified, Mammoth Unified, and Tahoe-Truckee Joint Unified. On average, parcel taxes provide $584 per pupil in districts that have passed them, though the amount ranges from about $25 to $4,500 per pupil (see Table 1). 6 Ta b l e 1. school disTricT Pa rcel Ta xes by counTy , 2010 –11 SourCe: PPiC S chool Finance Model (2013). n o Te: T able includes only school districts that collected parcel tax revenue in 2010 –11. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 4 Passed a measure No measure passed, but at least one cleared 55% No measure cleared 55% No measures proposed Student demographics Free and reduced- pr ice lu nch (%) 36 4 0 7 0 57 E nglish Learner (%) 20 21 31 23 W hite (%) 34 31 14 29 Income and per pupil funding Aver age m edian h ouseh old income ($) 85 ,115 76,926 53,188 60,375 Aver age other local revenue ($ /pupil) 666 353 277 198 Aver age total revenue ($ /pu pil) 8,592 7,481 8,957 7,521 Almost all parcel tax measures (87%) involve a simple flat fee that applies to all parcels. A small share of measures propose variable rates that hinge on property size or use (e.g., single-family homes, businesses, or undeveloped land). However, a recent court decision has cast doubt on the legal status of these variable rates, at least as they apply to businesses. 7 The parcel taxes proposed by school districts have tended to be more self-limiting than those proposed by other types of jurisdictions. Since 1987, the legislature has explicitly permitted school districts to exempt taxpayers age 65 or older, and later it added exemp - tions for disabled residents. 8 Most school parcel tax measures have taken advantage of the senior exemption, and a small number of others have used the disability exemption as well. 9 Nine in ten school parcel taxes have also included a time limit, usually between four and ten years, after which the tax must be renewed. Only 30 percent of non-school parcel tax proposals have included a similar time constraint. As might be expected, support for parcel taxes is higher in wealthier districts, which have more disposable income to spend on schools. 10 Median household income averages more than $85,000 in districts with parcel taxes, compared with about $60,000 in districts that have never proposed a parcel tax (Table 2). 11 Furthermore, 44 percent of districts with me - d ian household incomes in the top 10 percent have passed parcel taxes, compared with just 7 percent of districts with median household incomes in the bottom 90 percent. Districts with parcel taxes have fewer low-income students, English Learners, and students of color. 12 Districts that have passed parcel taxes are also more likely to be smaller and have fewer school-age children per household; these districts can propose lower parcel taxes and get the same benefit, since the revenue is distributed among fewer students. 13 Ta b l e 2 . changing Pa ssage Th reshold To 5 5 Pe rcenT may have liT Tl e imPa cT on inequaliTi es SourCe: PPiC S chool Finance Model (2013); American Community Survey 5-Year es timates of in come in the Past 12 Months; en rollment in Public Schools by et hnic de signation, 2010 –11, California de partment of e ducation. n o TeS : Averages are weighted by district average daily attendance. d i stricts with parcel taxes are statistically significantly different across all characteristics (0.01 level) from districts that have never proposed a parcel tax. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 5 A lower threshold might not do much to bridge these basic inequalities. As Table 2 shows, districts that have passed parcel taxes closely resemble those that proposed a tax that cleared 55 percent but not two-thirds. 14 By contrast, districts that proposed a tax that received less than 55 percent of the vote are far more disadvantaged; the group includes several large urban districts, including Hesperia Unified, Long Beach Unified, Los Angeles Unified, San Diego City Unified, and Vacaville Unified. Other studies have found similar results when comparing districts that passed parcel taxes with those that have not. 15 Districts with parcel taxes are not only better off than other districts but also benefit from other local revenues and have greater levels of per pupil funding.16 More than a third of all districts with parcel tax revenue are “basic aid” districts—their share of property tax rev - enue exceeds their revenue limit entitlements and they get to keep these excess revenues. 17 By contrast, only 10 percent of districts that have never proposed or failed to pass a par- cel tax measure are basic aid districts. 18 These excess property taxes provide, on average, an additional $322 per pupil to districts with parcel taxes compared to $83 per pupil in other districts. These districts also raise more local revenue from other sources, includ- ing the sale or lease of unused buildings or lands, and student fees. Although districts with parcel taxes have higher revenues than most other districts, they may also have higher costs. Districts with parcel taxes (as well as districts in which measures have garnered 55 percent of the vote) have higher minimum teacher salaries, which in part reflect the labor markets in which they compete for teachers. 19 Another way to examine costs is to look at regional labor markets. For example, salaries are high- er in areas with higher wages for college-educated non-teachers. 20 When total funding is adjusted using a regional wage index, differences in average funding between districts with parcel taxes and those that have never proposed them disappear. 21 In other words, parcel tax districts largely operate in high-wage areas and need extra revenue to cover these higher salaries. The San Francisco Bay Area has been at the center of the parcel tax movement since the passage of Proposition 13. Several key early court decisions concerned tax policy in San Francisco, and the Bay Area has been home to most of the parcel tax measures over time. 22 Since 1995, the region has accounted for three of every four parcel tax measures offered by schools, and these measures have been much more likely to pass in the Bay Area than in other parts of California. Overall, the Bay Area was home to more than 80 percent of school districts with parcel tax revenue in 2010–11. It is quite possible that the success of parcel taxes in the Bay Area in part reflects the far more liberal attitudes toward taxation and government spending in the region compared to any other part of the state. 23 It might also reflect mimicking, where a district views a parcel tax as more acceptable if neighboring districts have passed one. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 6 Construction bondsParcel taxes assessing Th e im Pa cT of a lo wer Threshold Since 1995, parcel taxes have accounted for 22 percent of all local revenue measures.24 Almost half of parcel tax measures have been put on the ballot by school districts; about six in ten of these district measures have been approved. About 10 percent of each type of district (elementary, high school, and unified) has passed parcel taxes. 25 Overall, voters in 105 districts have approved parcel tax measures, while 67 other districts have put at least one measure on the ballot. If the parcel tax vote threshold had been 55 percent rather than two-thirds, parcel taxes would have been approved in more than 60 percent of the 67 districts that put measures on the ballot that failed. As we have seen, a handful of districts have repeatedly placed parcel tax measures on the ballot. Of the districts that proposed parcel tax measures from 2007 to 2011, only 13 percent had never put a parcel tax on the ballot since 1995. 26 There was no similar pat- tern among districts that did and did not put the other main source of revenue, construc- tion bonds, on the ballot: 72 percent of the districts that proposed bond measures from 2007 to 2011 had proposed a bond measure since 1995, but so had 62 percent of districts that did not propose a bond measure during the same recent period. Figure 1 shows the consequences: the geographic scope of parcel taxes has been far more limited than that of construction bonds. fig u r e 1. school consTr ucTi on bonds have had a much wider geograPh ic range Th an P a rcel T a xes SourCeS: California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/Ce dA .html; un ited States Census (school district shapefiles). n o Te: T he map on the left shows the territory covered by school districts that have passed at least one school construc - tion bond since 1995; the map on the right shows the same for parcel taxes. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 7 Number of bond measures 93 porP Passage rate Number of bonds Passage rate $ state bonds passed 1987–88 1989–90 1991–92 1993–94 1995–96 1997–98 1999–00 2001–02 2003–04 2005–06 2007–08 2009–10 0 50 100 150 200 250 300 0 10 20 30 40 50 60 70 80 90 100 $800M $1.6B $2.8B $9.2B $3B $13B $12.3B $10.48B Of the 40 percent of parcel taxes that failed, three-quarters would have passed if the vote t hreshold had been 55 percent, which would have boosted the overall passage rate from 59 to 89 percent. However, the geographic scope of parcel taxes would not have been much different: roughly three-quarters of these would-be winners were proposed in the Bay Area, along with 83 percent of the ones that actually passed. Since districts have little reason to put a measure on the ballot that is likely to lose, the passage rate is probably inflated—it cannot include measures that are not proposed. Under a lower threshold, more measures are likely to be proposed, perhaps in a wider range of geographic areas. However, if districts get ambitious and propose measures with lower likelihoods of success, the passage rate might actually fall. a comparison case: school construction bonds To get a sense of potential outcomes, we can look at what happened after the passage of Proposition 39, which lowered the threshold for passing school construction bonds from two-thirds to 55 percent. Construction bonds are not a perfect comparison, but they are similar to parcel taxes in many important ways: they apply to school districts, they in- volve raising revenue, and their passage rate was altered in exactly the way proposed for parcel taxes. 27 Figure 2 shows the number of school bonds on the ballot and their passage rate for each two-year period between 1987 and 2010. 28 The number of measures placed on the ballot increased between 1997 and 2002, likely due to a confluence of factors: increased need for school facilities, new state bond money, a booming economy, and (after 2000) the changed threshold. 29 This number has fallen since 2002, probably due to both a decline in state funding (no statewide bond measure has passed since 2006) and a decrease in the school- age population. Moreover, because school construction typically lasts for 20 to 30 years, the need for new facilities may have been met by the high activity earlier in the decade. figure 2. a lower Th reshold increased Th e Pa ssage raTe b uT noT Th e number of school bond measures SourCeS: Kim ru eben, Tax Policy Center (1987–2000) (for a similar application of these data, see Kim ru eben and Pedro Cerdan, Fiscal Effects of Voter Approval Requirements on Local Governments [PPiC , 2003]); California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/C e d A .html (1995–2010). n o Te: n u mbers include school bonds of all kinds. We have no way to identify bonds proposed before Proposition 39 that would have qualified for the new threshold had the proposition been in effect. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 8 0 10 20 30 40 50 60 70 Before Proposition 39 After Proposition 39 Less than 55% 55% to two-thirds Greater than two-thirds Bond passage rate Percent voting yes Although districts have not proposed more measures, they appear to have asked for more money in each bond measure since the vote threshold was lowered: the median amount requested has increased by 38 percent in constant 2011 dollars (from $29 million to $40 million), while the median for other types of supermajority bond measures has actually declined (from $32 million to $27 million). The numbers are very similar when school bond amounts are calculated on a per pupil basis and for the measures that actually passed. 30 Districts seem to have been very strategic about the type of measures they have pro- posed, because failed measures under the new threshold have been rare. Figure 3 shows that the share of measures clearing the new 55 percent threshold but not the old one of two-thirds has increased since Proposition 39 (from 34% to 47%), while the share that would have won anyway has declined (from 57% to 36%). The share of complete losers— measures falling below the 55 percent threshold—has also increased, from 9 p ercent before to 17 percent after, but it remains low. figure 3. afTer Th e Th reshold was lowered, more bonds Pa ssed SourCe: California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/Ce dA .html (1995–2010). Overall, Proposition 39 produced a radical increase in the number of successful bond measures: as Figure 2 shows, there was a sudden increase in the passage rate that has largely sustained itself. But this does not reflect a broader shift in public attitudes toward government taxation or spending, since (as Table 3 shows) the passage rates of other fis- cal measures did not change over the same period of time. The average vote share for school construction bonds declined somewhat even as the passage rate jumped 19 points. Moreover, the average vote share was very similar for two other types of fiscal measures that are still subject to a two-thirds vote requirement: parcel taxes and bonds that are not covered by Proposition 39 and thus still require a two-thirds vote. The passage rates for these other types of measures has actually declined—quite steeply in the case of par- cel taxes (12 percentage points). Because more parcel tax measures have been placed on the ballot recently, the total number of successful measures has actually increased even though the passage rate has declined. Indeed, the recent increase in parcel tax measures may be a reflection of the decline in state funding over the past few years. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 9 Average pass rate Before Prop 39 After Prop 39 Change Before Prop 39 After Prop 39 Change Average yes vote School constru ction bonds 58% 77% +19% 68 % 63% -5% Oth er bonds 60 56 -4 65 66 +1 School parcel taxes 6 9 57 -12 70 67 -3 Ta b l e 3 . only school consTr ucTi on bonds Pa ssed aT a higher raTe a fTe r ProP osiTio n 39 SourCe: California ele ctions d ata Archive, www.csus.edu/calst/cal_studies/Ce dA .html. n o Te: o f t he three types of revenue measures, only school bonds were affected by the threshold change from two-thirds to 55 percent. About 14 percent of post– Proposition 39 school bonds did not qualify for the new threshold and contin - ued to require a two-thirds vote to pass. We have no way to identify bonds proposed before Proposition 39 that would have qualified for the new threshold had the proposition been in effect. Thus, we included all supermajority bonds in both periods to make the comparison consistent. When these two-thirds school bonds are excluded from the post–Prop - osition 39 period, the vote share is the same but the passage rate increases to 83 percent. conclusion Although parcel taxes have offered one of the only ways for school districts to increase their funding outside the strictures of Proposition 13, they account for less than 1 percent of statewide school revenue. About six in ten proposed parcel taxes have been approved, largely in small, wealthy school districts in the San Francisco Bay Area. Lowering the threshold for passing parcel taxes from two-thirds to 55 percent might raise this approval rate. But would it encourage a broader range of districts to propose such taxes in the first place? A similar threshold change for school construction bonds greatly improved the passage rate without necessarily increasing the total number of measures. Moreover, the districts that would have benefited most from a lower threshold in the past have been very similar to those that actually passed a tax. So it is not clear that a 55 percent threshold would expand the reach of parcel taxes to new areas of the state or to more disadvantaged students. Arguments to the contrary depend heavily on questionable assumptions. 31 Even if a lower threshold benefits only wealthy districts, it might serve to smooth the transition to a new school finance system, which has been overhauled to better target dis - tricts with needy students. A lower threshold could help make this system acceptable to these wealthier areas by giving them more control over their own finances. AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 10 noTes 1 for more on this new funding formula, see he ather ro se and Margaret Weston, California School District Revenue and Student Poverty: Moving Toward a Weighted Pupil Funding Formula (p pic, fe bruary 2013). 2 s c hool districts are able to raise other funds, including voluntary contributions from parent-teacher associa- tions and education foundations, the sale or lease of unused buildings, sales or publications, interest on investments, and some student fees. i n 2 011–12, districts raised an average of $3.1 billion in non–parcel tax local revenue. 3 t h e statewide 1 percent property tax is assessed on land when it is purchased and the tax is based on the purchase price. p r oposition 13 limits the increase in a property’s assessed value (the value on which it is taxed after purchase) to 2 percent per year. t h e difference in assessed value and market value may be large for land that has been held by one family or corporation for a long time. 4 t h ere has been recent litigation on this point, discussed below. a l so, some school districts have experimented with alternatives to the flat fee per parcel of land, including charging a flat fee per square footage or charging different fees based on the use of the land. f o r example, some districts have imposed different fees for va - cant lots, multi-unit residential lots, and commercial lots. 5 s p ecifically, the decision held that parcel taxes are “special” taxes under p r oposition 13. p r oposition 13 per- mits local jurisdictions to raise special taxes by a two-thirds vote of the people. f o r more details see Eric J. Brunner, “ th e p a rcel t a x,” in School Finance and California’s Master Plan for Education, ed. Jon s o nstelie and p e ter r i chardson ( p pic , 2 001), pp. 187–212. 6 s e veral school districts report parcel tax revenues of about $1 per pupil that appear to be from measures that have expired. 7 t h e f i rst d i strict c o urt of a p peals ruled in Borikas v. Alameda Unified School District that school districts do not have the authority to propose variable rates and the state s u preme c o urt recently refused to hear an appeal. t he legislature could overturn this decision: though some argue that variable rates are forbidden by p r oposition 13, the issue has traditionally been handled as a statutory and not a constitutional matter. th us, the law can be changed by the legislature with a simple majority and no follow-on vote by the general public. l e gislation ( aB 5 9) has been introduced in the a s sembly to explicitly permit such taxes, but has not yet passed. t h e legislature has tinkered with permissible exemptions from time to time in this way. f o r ex- ample, in 1990 the legislature permitted park districts to tax unimproved land at a lower rate than improved land, which was later extended to all local districts except K–12 school districts through s B 1 58 ( ch apter 70, st atutes of 1991). t h e most recent change was s B 8 74 ( ch apter 791, s t atutes of 2012), which allowed an ex- emption of persons of any age receiving ssdi benefits with income below 250 percent of the poverty line. 8 s e e a B 1 140 ( ch apter 100, s t atutes of 1987) and a B 3 85 ( ch apter 41, s t atutes of 2006). 9 a lt hough the senior exemption in par ticular seems intended to improve the odds of passage, the passage rate for measures that mention the exemption is about the same as for those that do not. 10 B ree l a ng and Jon s o nstelie, “ th e p a rcel t a x and the p r ice of p u blic s c hool Quality,” unpublished manu- script, d e cember 2012. 11 d i fferences in median income persist (though are smaller in magnitude) once income is adjusted for the dif - ferences in cost of living across districts. 12 d i stricts with parcel taxes have higher shares of students of a s ian descent, including f i lipinos and p a cific i slanders, and a higher proportion of students who identify with multiple races. h o wever, they have lower shares of a f rican a m erican and l a tino students and higher shares of white students. 13 l a ng and s o nstelie (forthcoming) use the number of students per parcel to define district residents’ tax price—the marginal increase a voter must pay for an additional unit of education. t h ey find that this measure of tax price is a significant negative predictor of the likelihood of passing a parcel tax. 14 B ecause parcel tax revenue is reported by district and is not audited, there are some uncertainties. t h e table includes six districts (Knightsen Elementary, Mc sw ain u n ion Elementary, Menlo p a rk c i ty Elementary, Mojave un ified, s a n d i eguito u n ion h i gh, and t h ree r i vers u n ion Elementary) that passed parcel taxes between 1996 and 2011 but do not report parcel tax revenue in 2010 –11. i n m ost instances, these parcel taxes have expired. i t also includes six districts ( h ayward u n ified, h i llsborough c i ty Elementary, l om a p r ieta Joint u n ion Elementary, p a cifica, and s a nta Barbara c i ty s c hools) that report parcel tax revenue but for whom we do not have a record of a parcel tax election between 1996 and 2011. s o me of these districts have longstanding parcel taxes and hold periodic votes to override the Gann limit (a spending ceiling introduced in the 1970s) so that they can spend their parcel tax revenue. f i nally, it excludes three districts ( fr emont u n ified, l o s Gatos- sa ratoga Joint u n ion h i gh, and s u nnyvale) that passed parcel taxes in 2010 but did not receive revenues until after the 2010 –11 school year. 15 s e e Brunner, “ pa rcel t a x”; l i sa c h avez and l o uis f r eedberg, “ ra ising r e venues l o cally: p a rcel t a xes in ca lifornia s c hool d i stricts 1983 –2012” (Ed so urce, 2013). AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 11 1 6 d i stricts that have never cleared 55 percent have the highest levels of funding largely because they have the most disadvantaged students, and state and federal programs overwhelmingly target disadvantaged stu- dents. h eather r o se and Margaret Weston, California School District Revenue and Student Poverty: Moving Toward a Weighted Pupil Funding Formula ( p pic , 2 013). 17 i f p roperty taxes are insufficient to meet a district’s entitlement, the state fills the gap; on average, property taxes comprise 35 percent of districts’ revenue limits and the state provides the rest. But if a district’s share of property taxes exceeds the revenue limit entitlement, it retains the excess revenue. f o r more on the rev- enue limit system, see Margaret Weston, Funding California Schools: The Revenue Limit System ( p pic , 2 010). se e Weston, Basic Aid School Districts ( p pic , 2 013), for more information about basic aid school districts. 18 t h e exact percentages of basic aid by parcel tax status are 10 percent (79/790) that never proposed a tax, 8 percent (2/24) that proposed a tax but got less than 55 percent of the vote, 14 percent (6/24) of districts that proposed a tax and got more than 55 percent of vote, and 37 percent (39/105) of districts that passed a tax. c o nversely, 30 percent (37/126) of basic aid districts have passed a parcel tax, 2 percent (2/126) have proposed a tax but failed to get 55 percent, 5 percent (6/126) have proposed and gotten more than 55 per - cent, and 63 percent (79/126) have never proposed a parcel tax. 19 M inimum salaries average $43,000 in districts that have passed or cleared 55 percent compared to $40,000 in districts that did not clear 55 percent and $41,000 in districts that have never proposed a parcel tax. 20 h e ather r o se and r i a s e ngupta, Teacher Compensation and Local Labor Market Conditions in California: Implications for School Funding ( p pic , 2 007). 21 i n u nadjusted terms as t a ble 2 displays, districts that have passed parcel taxes have average funding levels that are about $1,000 per pupil greater than districts that have never proposed a parcel tax. o n ce adjusted, this difference decreases to about $100 per pupil and is no longer statistically significant. 22 B runner, “ pa rcel t a x”; l a ng and s o nstelie, “ th e p a rcel t a x and the p r ice of p u blic s c hool Quality.” 23 E ric McGhee and d a niel Krimm, “ ca lifornia’s p o litical Geography” ( p pic , 2 012). 24 W hile we have some data for some types of measures in elections as far back as 1987, most of our data on lo - cal elections come from the c a lifornia Elections d a ta a r chive, which currently has records for the years 1995 through 2011 only. 25 o f t he 545 elementary districts, 62 have passed parcel taxes, as have 10 of 82 high school districts and 33 of 335 unified districts. 26 W e chose the period of 2007 to 2011 because it offered a large enough range of time to give most districts an opportunity to place a measure on the ballot if they wanted, while also offering plenty of time since the begin - ning of the data set in 1995. 27 t h ere are a number of differences between parcel taxes and construction bonds. c o nstruction bonds sup- ply long-term capital financing, while parcel taxes fund yearly operating expenses. s c hools receive match- ing funds from the state for construction projects but not for parcel taxes, and a statewide bond measure to finance the match has passed almost every two years between 1986 and 2006. ( th ere was no bond measure on the ballot in 2000, the year that p r oposition 39 was passed. t h e only failed bond measure was p r oposition 1B in 1994.) s o s chool districts have had incentives to put bond measures on the ballot, as well as an argu - ment for why they should be passed, regardless of the mood of the electorate in other respects. 28 c o mpanion legislation to p r oposition 39, passed by the legislature, required qualifying measures to be pro - posed at an otherwise regularly scheduled election. a s a p ractical matter, virtually all of the measures since pr oposition 39 have been proposed at regularly s che dule d st atewide primary or general elections in even- numbered years, though a handful have been proposed at regularly scheduled odd-year elections. We have combined pairs of years in order to make the numbers before and after the reform as comparable as possible. 29 f o r more on proposal and passage rates over time, see Kim r u eben and p e dro c e rdan, Fiscal Effects of Voter Approval Requirements on Local Governments ( p pic , 2 003). 30 W e only have data on school enrollment for 2010, so the per pupil calculation cannot incorporate differential growth rates of school districts over time. l i kewise, we cannot calculate the per pupil value for 88 school dis - tricts that no longer existed in 2010 because they had been split or merged with other districts. 31 o n e recent study by i m re Meszaros concluded that as many as two-thirds of districts could have even odds of passing a parcel tax under a lower threshold. But this estimate is almost certainly far too high. Meszaros himself notes that the conclusion depends heavily on the assumption that a district’s decision to propose a parcel tax is effectively random. i f i t is not random—if, as we have noted, districts are very strategic about putting such measures on the ballot and will not do so if the odds of passage are not good—then the pro - jected passage rate offered by Meszaros will be exaggerated, and probably to a significant degree. s e e i m re Meszaros, “ th e p o litical Economy of s c hool d i strict p a rcel t a x Elections” ( ph . d. d issertation, u n iversity of so uthern c alifornia, 2010). AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 12 acknowledgmenT s We thank Eric Brunner, Heather Hough, Mary Perry, Kim Rueben, Jon Sonstelie, and Paul Warren for their helpful comments and suggestions and Mary Severance, Kate Reber, and Jenny Miyasaki for editorial support. A special thanks to Tom Duffy of the Coalition for Adequate School Housing, who provided a wealth of information about the history of bond elections in California. relaTed PPic P ublicaTi ons PPIC Statewide Sur vey: Californians and Education (ap r il 2013) Basic Aid School Districts ( se pte m b e r 2013) School Finance ( nove mber 2012) Funding California Schools: The Revenue Limit System (Ma rch 2010) AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 13 PPic exPe rTs er ic m cghe e Research Fellow 415-291-4439 mcghee@ppic.org exp ertise • e l ections  – C alifornia redistricting reform   – S tate and local voter initiatives   – V oting behavior • l e gislative behavior   – l e gislative organization   – r e sponsiveness to public opinion   – S tate term limits • Political participation • P olitical parties and party polarization • Polling and public opinion ed ucation P h. d. ( 2003) and M.A. (1998), political science, u n iversity of California, Berkeley margaret we ston Research Fellow 916-440-1134 weston@ppic.org ex pertise • K -12 education   – S chool finance   – C ategorical programs ed ucation P h. d. ( expected in 2014), school organization and education policy, u n iversity of California, d a vis; M.P.P. (2008), public policy, u n iversity of Michigan; M.A. (2006), teaching, Johns Hopkins u n iversity Patrick murphy Director of Research and Senior Fellow, Thomas C. Sutton Chair in Policy Research 4 15-291-4445 m urphy@ppic.org ex pertise • K -12 education   – St ate e d ucation Agencies   – C ommon Core i mple mentation • Higher education    – C ommunity college financing • i l licit drug policy  • B udget and tax policy ed ucation P h. d. (1996), political science, u niversity of Wisconsin, Madison; M.P.A. (1986), public administration, u n iversity of Texas, Austin Paul warren Research Associate 916-440-1124 warren@ppic.org ex pertise • K -12 school finance   – P roposition 98   – C ategorical programs • K-12 testing and accountability   – St ate assessment programs   – S tate and federal accountability programs ed ucation M .P.P. (1982), Kennedy School of Government, Harvard u n iversity AT iSSue: [ PArCe l TAx eS Fo r eduC ATi on in CAl iFo rniA ] PP i C 14 PPic board of d irecTo rs Donna Lucas, Chairch ief Executive of ficer lu cas p u blic a f fairs Mark Baldassare pr esident and c Eo pu blic p o licy i n stitute of c alifornia Ruben Barrales pr esident and c EoGr o W Elect María Blanco Vice p r esident, c i vic Engagement ca lifornia c o mmunity f oun dation Brigitte Bren at torney Walter B. Hewlett ch air, Board of d i rectors William and f lo ra h e wlett f oun dation Phil Isenberg c hair del ta s tewardship c ouncil Mas Masumoto au thor and f a rmer Steven A. Merksamer se nior p a rtner nie lsen, Merksamer, p a rrinello, Gross & l e oni, llp K im Polese c hairman cl ear st reet, i nc. Thomas C. Sutton re tired c hairman and c E o pa cific l i fe i n surance c om pany Copyright © 2013 Public Policy in stitute of California. All rights reser ved. San Francisco, CA The Public Policy i n stitute of California is dedicated to informing and improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. PP iC i s a private operating foundation. i t d oes not take or support positions on any ballot measures or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office. PP iC was estab- lished in 1994 with an endowment from William r . H ewlett. Short sections of text, not to exceed three paragraphs, may be quoted without written permission provided that full attribution is given to the source. re search publications reflect the views of the authors and do not necessarily reflect the views of the staff, officers, or Board of d i rectors of the Public Policy i n stitute of California. PUB L I C POL I Cy I nS T I T U T E Of CA L IfO RnI A 50 0 W A S H I n g T O n S T R E E T , SU I T E 600 • S An f R A nC I S C O , C A 94111 P 415.291.4400 • F 415.291.4401 • www.ppic.org P P I C S AC R A M E nT O C E nT E R • S E nA T O R O f f I C E B U I L D I n g 1121 L STREET , S U ITE 801 • S A C R A M E nT O , C A 9 5 814 P 916.4 4 0.1120 • F 916.4 4 0.1121 additional rEsourcEs rEl atEd t o K–12 Education ar E a Va il a BlE at WWW . ppic.or G"
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