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,” Prop 30 passed.
Seven budget years later, the results are in:
More than 100 percent of expected Prop 30 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 >150 percent of average expected Prop 30 revenue per student. Retirement spending at San Francisco Unified increased >200 percent and 125 percent at Santa Monica Unified.
Such outcomes were predicted before the tax increase. But elected officials chose to bury the truth. The cover-up also allowed the retirement problem to grow, which will produce even higher costs down the road. Worse, retirement spending in excess of 100 percent of Prop 30 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 Prop 30 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 Prop 30 initiative, which raised the top rate to 13.3 percent. But that revenue will also be absorbed by growth in retirement spending because of already-scheduled steep increases in retirement costs and $230 billion of unfunded retirement obligations added in the last decade. Earlier this year San Francisco Unified enacted a regressive tax increase to cover up its soaring retirement costs. Just imagine how many more increases will be sought after the bull market ends and revenues decline while 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. That would free up billions that could actually improve schools.
Elected officials should always tell financial truths to constituents.