'Orwellian,' Jerry? Look in the Mirror

Jerry Brown has hit the Prop 30 campaign trail this week, in full whine. With poll numbers like this and this, his bad mood is easy to understand. But is his whining justified?

The governor calls the opponents “Orwellian” for their recent TV ad saying that Prop 30 will raise the tax on gasoline. But the fact of the matter is that the issue is cloudy.

Prop 30’s opponents make a plausible legal argument that the provisions of Brown’s measure, written to be a constitutional amendment, will yield a higher tax on gasoline and diesel because of the way they interact with the contortions the Legislature has gone through in recent years on swapping sales taxes on fuels for fuel excise taxes. The Legislative Analyst disagrees, but that office brings no legal expertise to the table on the issue. This would not be the first time an initiative created unintended effects because of poor drafting. Given the complex tangle of fiscal knots with which California has bound itself in its laws and constitution, differing interpretations of how the law works are inevitable, and hardly the stuff of Orwell’s 1984 or Animal Farm.

When Brown invoked Orwell, perhaps he was thinking about his own ads for Prop 30. In this television spot, state Controller John Chiang looks into the camera and says, with a straight face, that Prop 30 “means no more school cuts, with strict accountability. Sacramento politicians can’t touch the money….”

None of that is true, of course. Prop 30 temporarily raises taxes and state revenue, thereby reducing the state’s deficit and avoiding the trigger cuts to schools Brown and legislative Democrats enacted to threaten voters. But it doesn’t guarantee that schools won’t be cut more in the future, either when the next recession arrives (as it surely will) or when the tax increase expires, some of it in four years and the rest in seven.

Nor does it put the money off limits to “Sacramento politicians.” The extra revenue created by Prop 30 will free up an equal amount of money that can be budgeted for any purpose. That budgetary flexibility is the great advantage Prop 30 holds over Molly Munger’s Prop 38, which is mostly earmarked only for schools and pre-school. It’s why Brown’s measure has attracted support from health advocates, hospitals, social services providers, prison guards, universities, and the like. The extra revenue protects programs they care about, and that many voters care about too. (Has anybody bothered to tell all those aging baby boomers opposing Prop 30 that they are voting against funding the Medi-Cal program that will pay for their nursing homes?) Giving the people we elect more authority and discretion in raising and spending money is essential to making California governable.

But Brown and his hired liars are afraid to say so. Instead, the Prop 30 campaign puts out ads in which a Sacramento politician tells us untruths about what Sacramento politicians can or can’t do with the money the measure raises. It’s easy to understand why they do that. But understanding why someone might say “War is peace. Freedom is slavery. Ignorance is strength” doesn’t stop it from being Orwellian.

California's shrinking public workforce

If you’re one of those people who likes to blame California’s public workers for the state’s problems, Stephen Levy of the Center for the Continuing Study of the California Economy has good news for you. California’s public workforce, which has long ranked among the smallest in the nation relative to population, shrank even further from 2007 to 2011.

The ratio of California state and local employees per 10,000 residents fell by 7 percent in that period; the ratio of K-12 school employers fell by 11 percent. These numbers are Census Bureau estimates for March 2011. Given the continuing budget cuts and workforce reductions by the state government, cities, and school districts over the last 18 months, the current numbers are far lower.

Which means that if you are one of those people who’d like the police to investigate and capture car thieves or who’d like the fire truck to arrive quickly in an emergency or who’d like your child’s school to have a library where she can research her homework or a counselor to guide her through applying to college—well, chances are that you are out of luck.

Cops Versus the Schools

In an excellent analysis over at EdSource, Robert Manwaring, a veteran California school policy wonk, asks a deceptively simple question: “If K-12 matters most, why doesn’t state budget reflect this?” Unfortunately, as newspaper folk put it, he buries the lede.

Having been guilty of the same crime here in the past, let me remedy that error for both of us:

California is 47th in school spending because cops, fire fighters, and prison guards have sucked up all the money.

California elected officials say that schools are their highest priority. So do the voters in polls. But that’s not how they act.

And until, as Joe Mathews nicely puts it, “you walk into a police station, and all the cops at the desks are 65,” all that political talk about schools being our highest priority is just hot air.

The Facebook Effect?

Over at The Reality-Based Community Matthew Kahn has a post suggesting that the Facebook IPO and the minting of a thousand new millionaires will make property tax revenues “soar” in Silicon Valley and help local schools. Matthew Yglesias picks up the theme on his blog. They both seem to forget that, in California, public finance is, well, different.

Even if the demand created by Facebook employees were to raise housing prices in the Bay Area, the effect on property tax revenues would be small. Under Prop 13, increases in the assessed value of existing homes are limited to 2 percent a year. The Facebook effect would be limited to houses at the margin—either those newly built (which Kahn sees as unlikely under the Bay Area’s restrictive housing policies) or those existing homes whose sale would not have happened in the absence of the Facebook IPO and whose new and higher value would result in a higher tax on the property.

How big would that marginal effect be?

Let’s assume all thousand Facebook millionaires buy a house and each sale (both new construction and upward assessment of an existing house) results in an increase in assessed valuation of $500,000. The resulting annual increase in property tax paid would be 1 percent of $500 million, or $5 million. (There would be some extra in jurisdictions that have passed bonds that add an increment over the basic 1 percent rate.) Even if we assume that all the Facebook millionaires buy their houses in Santa Clara and San Mateo counties, the increased property tax revenue amounts to only one-tenth of 1 percent of the roughly $5 billion a year in property tax collected by those two counties, of which about 60 percent goes to schools.

But because this in California, not even that $3 million necessarily helps the local schools. Under its Prop 13 and Prop 98 school financing system, California imposes revenue limits on school districts. Changes in local property tax revenue collections for schools are offset by increasing or lowering general state aid to districts to maintain the revenue limit. In the typical district, the increase in property tax revenue from a Facebook millionaire will flow to back to the state budget, not the local school.

The exception is for what are called “basic aid districts,” those whose local property tax revenues for schools exceed the statewide revenue limit, permitting them to spend over the limit. Because many of the school districts in Silicon Valley are basic aid districts, they would receive some of that $3 million in new revenue. Their new revenue would be dwarfed, however, by the money they have lost from the state’s new policy of reducing categorical funding for basic aid districts.

If the Facebook IPO will make for “a neat event study,” it will not be for the reasons Kahn suggests. The more interesting story here is how, under California’s strange and radical system of public finance and governance, an event so large in economic terms can have so little effect on the public finances of the local communities in which it is happening.

It's Too Late

Just to remind everyone what's at stake, the students and staff at Roy Romer Middle School in North Hollywood weigh in on the budget debate.