California Prop. 30 & 38: Two competing tax measures to fund schools ravaged by state budget cuts
On Tuesday, California voters will be asked to choose between two competing ballot measures – Proposition 30 and Proposition 38 – that will temporarily raise taxes to prevent further cuts to schools and help pay down the state’s massive structural debt.
In recent years, schools, community colleges, and state universities have suffered steep cuts as Sacramento lawmakers tried to bridge immense state budget deficits caused by declines in tax revenues during the recession and slow economic recovery.
As a result, scores of teachers have been laid off, class sizes have grown, fewer students have been enrolled at community colleges, and both the California State University (CSU) and University of California (UC) systems have repeatedly increased tuitions and student fees.
Overview of Prop. 30
To avoid further cuts to education, Gov. Jerry Brown proposed Prop. 30 to temporarily raise the sales tax by a quarter of a cent (or $0.0025) and increase the state income tax for the top income brackets by 1% to 3%. The sales tax increase would last for 4 years (or between Jan. 1, 2013 through Dec. 31, 2016) and the income tax hike would be in effect for 7 years (or from 2012 – 2018).
Prop. 30 income tax increase
The state income tax increase proposed by Prop. 30 would affect about 1% of taxpayers in California, namely individuals earning more than $250,000 a year or couples reporting more than $500,000 in annual incomes.
Currently, the state’s income tax rate tops off at 9.3%. But if voters approve Prop. 30, then:
- Individuals earning between $250,000 to $300,000 a year or couples earning $500,000 to $600,000 a year would pay 10.3% state income tax or an increase of 1%;
- Individuals earning between $300,000 to $500,9000 a year or couples earning $600,000 to $1 million a year would pay 11.3% state income tax or an increase of 2%;
- And individuals earning between $500,000 or more a year or couples earning $1 million or more a year would pay 12.3% state income tax or an increase of 3%. (Note that all incomes exceeding $1 million are subject to an additional 1% state tax to support mental health programs in California; Prop. 30 would not change that.)
The California Legislative Analyst’s Office (LAO) estimated that Prop. 30 would generate about $6 billion per year. The additional tax revenues generated by Prop. 30 would be used to help the state pay down its debts and prevent $6 billion in cuts to schools for the 2012-2013 fiscal year.
“It’s time to stop the cuts and invest in our future,” Brown said in a television ad.
Public Safety ‘Realignment’
Prop. 30 would also provide constitutional guarantee of state funding to local governments under Brown’s public safety “realignment.” In 2011, the state transferred thousands of non-violent offenders to local jails to comply with the Supreme Court’s order to reduce its prison population.
Under the realignment plan (A.B. 109), local law enforcement would be responsible for incarcerating and supervising the parole and drug and mental health treatments of low-level, non-violent offenders while the state would focus on dealing with serious, violent, or sexual offenders.
In exchange for taking on more responsibilities, local governments received $6 billion in state funding last year; Prop. 30 would guarantee in the constitution that local governments would receive at least $6 billion in state funding for the realignment or a portion of the state sales tax revenue.
But if voters reject Prop. 30, education and other state programs would see about $6 billion in “trigger cuts”, which would likely take effect beginning Jan. 1, 2013.
According to the LAO, the trigger cuts would eliminate:
- $5.35 billion in K-14 education, impacting schools and community colleges
- $250 million from the University of California system
- $250 million from the California State University system
- $50 million from the California Department of Development Services, which provides services for people with developmental disabilities
- $20 million in grants to city police departments
- $10 million from CalFire
- $7 million from California Department of Water’s flood control programs
- $5 million in grants for local water safety patrols
- $4 million from the California Department of Fish and Games
- $2 million from the California Department of Parks and Recreation
- $1 million from the California Department of Justice
Without a doubt, local school districts would bear the brunt of the trigger cuts. But given that the trigger cuts would fall in the middle of the school year, school districts would have few options to adjust. According to the LAO, some of the cost-saving options include shortening the school year, drawing down their reserves, or borrow money in the short-term. Community colleges could end up accepting and enrolling fewer students to save money.
In addition, the California State University would raise tuition fees by $150 per semester (or 5%) to make up for its $250 million budget shortfall if Prop. 30 fails. The University of California would likely increase tuition and student fees, although no specifics have been announced.
Overview of Prop. 38
But complicating matters for Brown’s Prop. 30 is Proposition 38 – a competing tax measure backed by Pasadena attorney Molly Munger.
Prop. 38 would raise state income tax rates for nearly all Californians for 12 years, from 2013 to 2024.
The tax increase proposed by Prop. 38 would impact every individual making more than $7,316 a year or couples earning more than $14,642 a year and would the rate increase would range from 0.4% to 2.2% on a sliding scale. Like Prop. 30, all incomes above $1 million are still subject to a 1% tax to fund state mental health services.
Prop. 38 income tax increase
According to LAO, if Prop. 38 passes:
- Individuals earning between $7,316 to $17,346 a year or couples earning between $14,2632 to $34,692 a year will have their income tax rate increase by 0.4%, from 2% to 2.4%.
- Individuals earning between $17,346 to $27,377 a year or couples earning between $34,692 to $44,721 a year will have their income tax rate increase by 0.7%, from 4% to 4.7%.
- Individuals earning between $27,377 to $38,004 a year or couples earning between $54,754 to $76,008 a year will have their income tax rate increase by 1.1%, from 6% to 7.1%.
- Individuals earning between $38,004 to $48,029 a year or couples earning between $76,008 and $96,058 a year will have their income tax rate increase by 1.4%, from 8% to 9.4%.
- Individuals earning between $48,029 to $100,000 a year or couples earning between $96,058 or $200,000 a year will have their income tax rate increase by 1.6%, from 9.3% to 10.9%.
- Individuals earning between $100,000 to $250,000 a year or couples earning between $200,000 to $500,000 a year will have their income tax rate increase by 1.8%, from 9.3% to 11.1%.
- Individuals earning between $250,000 to $500,000 a year or couples earning between $500,000 to $1 million a year will have their income tax rate increase by 1.9%, from 9.3% to 11.2%.
- Individuals earning between $500,000 to $1 million a year or couples earning between $1 million to $2 million a year will have their income tax rate increase by 2%, from 9.3% to 11.3%.
- Individuals earning between $1 million to $2.5 million a year or couples earning between $2 million to $5 million a year will have their income tax rate increase by 2.1%, from 9.3% to 11.4%.
- Individuals earning over $2.5 million a year or couples earning over $5 million a year will have their income tax rate increase by 2.2%, from 9.3% to 11.5%.
The LAO estimated that Prop. 38 would bring in about $10 billion in extra revenues per year between 2013 – 2014.
The tax measure proposes to allocate at least 60% of the tax revenues to schools between 2013 and through the end of fiscal year 2016-2017 with the rest going toward paying down the state’s debts. Then from 2018 until the measure’s expiration in 2024, schools’ share of Prop. 38 revenues would increase to 85%. Some of the revenues would also fund early childhood education and schools that take in low-income students.
To increase accountability and transparency, Prop. 38 would require school districts to hold public meetings on how they plan to spend the additional funding and publish their budgets for each school online.
Recent surveys suggest Prop. 30 & Prop. 38 won’t pass
Two recent surveys indicated that Prop. 30 and Prop. 38 will face uphill battles with voters on Tuesday.
An October poll commissioned by the Public Policy Institute of California (PPIC) showed support for Prop. 30 was slipping – 48% would vote yes on Prop. 30, a 4% drop from September when 52% said they would vote yes on the measure.
The PPIC survey found that Munger’s Prop. 38 trailed behind with only 39% yes votes and 53% no votes.
A USC Dornsife and LA Times poll in October also showed a “sharp decline” of support for Prop. 30. Only 46% of those surveyed last month responded that they would vote for Prop. 30 compared to 55% in September and 64% in March.
The October surveys were conducted after Munger ran attack ads against Prop. 30. Her decision to go negative against Prop. 30 was roundly criticized, and Munger later pulled down the negative ads. But the damage may have been done.
“Republican support is dropping as a result of the attacks from the campaign against Prop. 30, and Democrats are slipping away after hearing the message from the Prop. 38 campaign,” said Dan Schnur, director of the USC Dornsife/Los Angeles Times Poll and director of the Unruh Institute of Politics at USC. “The governor can get this passed without Republican support, but it appears that the message from Prop.  is killing him with Democratic voters.”
- California Secretary of State: Voter Guide on Prop. 30 Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding
- California Secretary of State: Voter Guide on Prop. 38 Tax to Fund Education and Early Childhood Programs
- California Legislative Analyst’s Office: Analysis & fiscal impact of Prop. 30 (PDF)
- California Legislative Analyst’s Office: Analysis & fiscal impact of Prop. 38 (PDF)
- Yes on Prop. 30’s website
- Yes on Prop. 38’s website
- Public Policy Institute of California: Voters Split on Proposition 30–Proposition 31, 32, 38 Lag
- USC Dornsife: USC Dornsife/Los Angeles Times Press Release
- California State University: Cal State Trustees Adopt Budget Contingency Plans
- University of California: Regents endorse state budget amid fiscal uncertainty
- WhatTheFolly.com: California faces higher deficit in revised 2012-13 budget
- WhatTheFolly.com: Revised 2012-13 California Budget: Sources of the higher deficit projections
- WhatTheFolly.com: Revised 2012-13 California Budget: Proposed cuts to bridge the additional $6.5 billion shortfall
- WhatTheFolly.com: Revised 2012-13 California Budget: Programs subject to trigger cuts if tax ballot measure fails
- WhatTheFolly.com: California hit with $1 billion trigger cuts
- WhatTheFolly.com: California presents long-overdue plan to reduce prison overcrowding
- WhatTheFolly.com: California attempts to fix broken prison system with ‘realignment’
- WhatTheFolly.com: California’s recidivism rate drops but remains one of the nation’s highest