Voting to endorse Proposition 15, the Schools & Communities First Initiative, Santa Clara County Supervisors repeatedly mentioned $504 million that proponents predict will flow into county and city coffers.
But, wait! A total of $1,217 million ($1.2 billion) of new property tax revenue is supposed to be raised in the county. Where did the other $713 million go? To local schools?
Sadly, no. Proposition 15 will only distribute $139 million — 11% of new revenue — to schools and community colleges in the county. Palo Alto Unified will get just $1 million. Mountain View and Los Altos schools get $2 million, combined.
From Palo Alto to Gilroy, $529 million of property tax raised for education will leave the county 40% of all new tax levied here. Is this what you expected?
Under Proposition 15, property taxes leave counties for the first time. Just 1% of the new revenue in Palo Alto, Mountain View, Saratoga and Los Gatos districts flows to their schools. And none of the remainder goes to south county. Those cash-strapped districts get to keep a little more of their own locally raised revenue, but then join their neighbors as net contributors to the statewide fund.
Discussing Proposition 13's 1978 tax reform, people describe a traumatic cut to local revenues and the mechanistic entitlement granted to long-term property owners. Over time, the Cain-vs-Abel battle it created among local governments for the remaining 1% levy — and the complete opacity of the byzantine allocation process that resulted — have proved equally detrimental to California school funding.
An example? Property tax revenues for Ravenswood School District in East Palo Alto are growing by a stunning 12.45% this year. The district, however, will receive no property tax at all. In fact, state funding deferrals mean Ravenswood will have to borrow from March to October to pay its bills. All of its property tax revenues have been diverted by the legislature to pay a state obligation to the county and local cities known as "the VLF Swap." The opacity of this $9.4 billion statewide diversion is a legacy of Proposition 13.
Proposition 15 is another tax reform. It creates a statewide school funding pot. This pot is disproportionately funded by counties located in high-cost areas and those that allocate a large proportion of property tax to education. Santa Clara checks both boxes. The mechanisms defined in Proposition 15 redistribute at least $1.4 billion from Santa Clara, Orange, San Mateo, San Francisco, Monterey, Humboldt, San Luis Obispo and five other counties.
Who benefits? Counties with low percentage allocations to education or low regional property values. Los Angeles County will be the biggest net recipient. Although Los Angeles has a high proportion of commercial industrial property (30% of the new revenue statewide) and average regional costs, it allocates a relatively low percentage to education. Proponents forecast an impressive 74% of LA's new local revenue will flow to its county and municipal governments. This leaves very little for schools. Since the pot is distributed based on the statewide education funding formula, and disregards county effort, Los Angeles would pull out $276 million more than it put in. Other, less surprising, large net beneficiaries: Riverside, San Bernardino, Sacramento, Fresno and Kern counties.
Another problem? The proposition doesn't just reallocate new revenue that it raises. No, it also subsumes all new construction and every sale of appreciated commercial-industrial property. Proponents' research shows 30% of new revenue coming from properties that have already changed hands within the decade — typically consolidations for new development and properties bought for renovation and resale.
Note that 12.5% of the property tax revenue now flowing to Santa Clara local governments and schools is the result of new commercial construction and change of ownership over the past decade. Going forward, the legislature will decide how much remains in Santa Clara County and how much flows to the common fund to be shared statewide. This shift to legislative control introduces an ongoing vulnerability in the growth and stability of local school funding.
Looking at all these new mechanisms, Proposition 15's authors took an extraordinarily complex approach to "closing the loophole." To reclaim the $3B annual statewide subsidy to commercial industrial property owners with base years before 1990, they propose shifting a subset of all commercial properties to a market-value assessment system, creating a new statewide education fund with 2019-based distribution rules, granting new tax exclusions and exemptions to businesses and small commercial property owners, moving property taxes outside county boundaries, enshrining commercial residential entitlements in the constitution, and centralizing more control in the legislature. Unsurprisingly, $53 billion of the new money raised in the county will go to the assessor, controller, county counsel, and appeals board to try to make this happen.
If it becomes law, these complexities — and their attendant risks — suggest that Santa Clara will need to act decisively to protect local revenues.
Fair warning, though, expect little sympathy in Sacramento. My experience trying to get a regional cost supplement into school funding suggests that the Bay Area is viewed like Capitol City in Hunger Games. From Richmond to Gilroy, we are seen as the idle rich — and certainly not as tightly packed, hard-laying geese producing the excess $28 billion of golden income tax eggs that provide the backbone of statewide K-14, UC and CSU funding.
Proposition 15 is no great friend to Santa Clara. Contributing a growing $529 million a year more to statewide school funding, without materially helping the poorest districts among us, deserves thought. Let's implore local officials to do all the math — not just estimate their cut — and be 100% transparent about the whole picture.
Jennifer Bestor is a longtime Menlo Park resident who has served as the volunteer research director for Educate Our State, a grassroots, statewide, parent-led organization committed to a high-quality public education for all students. She can be reached at [email protected].
• Read a viewpoint in support of Proposition 15 by Palo Alto resident Nancy Shepherd: Guest opinion: Dare to clean up part of Prop. 13? Vote 'yes' on Prop. 15