The Verdict On Prop 30 — Part I

>100% of schools’ share went to increased retirement spending.

In January 2012 California Governor Jerry Brown announced he would ask California voters “to approve a temporary tax increase on the wealthy, a modest and temporary increase in the sales tax, and to guarantee that the new revenues be spent only on education.” Later that year his proposal was embodied in Proposition 30, a temporary tax increase projected by the Legislative Analysts Office to raise $6 billion per year for four years and smaller amounts for three years. Marketed as “Temporary Taxes to Fund Education,” P30 passed. Seven budget years later, the results are now known:

More than 100 percent of expected P30 revenue for schools went to INCREASED school spending on pensions and retiree health care costs. Eg, over the seven years of the tax increase, Fresno Unified increased retirement spending $4000 per student, 167 percent of the average expected P30 revenue per student. Outcomes were no different elsewhere:

 FYE12 — FYE19 increase in retirement spending per student expressed as percentage of estimated average P30 revenues per K-12 student. FYE19 estimated.

FYE12 — FYE19 increase in retirement spending per student expressed as percentage of estimated average P30 revenues per K-12 student. FYE19 estimated.

Such outcomes were predicted before the tax increase. But elected officials chose a cover-up via tax increase. The cover-up also allowed the retirement problem to grow worse, which will produce higher costs down the road. Worse still, school retirement spending in excess of 100 percent of P30 revenues ate into other school revenues, forcing schools to lay off and underpay teachers despite record revenues of more than $16,000 per student.

It’s one thing to pay higher tax rates for better services, quite another to pay higher tax rates to fund higher retirement costs. But that’s all the state accomplished for schools by enacting P30 without first addressing retirement spending. Elected officials are continuing to seek tax increases to cover up rising retirement costs. Misled again in 2016, state voters approved an extension (Proposition 55) of the income tax portion of the P30 initiative. But that revenue will also be absorbed by growth in retirement spending because of steep already-scheduled increases in retirement costs and $230 billion of unfunded retirement obligations added in the last decade. This year San Francisco Unified enacted a regressive tax increase to cover up retirement costs that increased more than twice P30 revenues. Just imagine how many more tax increases will be sought when the current bull market ends, tax revenues decline, and retirement costs keep rising.

If elected officials really want to help schools they can — and should — act right now to reform retiree health care, the costs of which are fast adding to school district pension woes. Doing so would free up billions of dollars that could actually improve schools. Needless to say, any school district asking for higher taxes should first be required to reform retirement spending.

Part II will address other consequences of P30.