Educational Financing Lessons from California

"Quality Counts" is the title of a major report on education in the states released earlier this year (1997) by Education Week magazine, the voice of the U.S. educational establishment. The state that took the biggest hit for declining quality of education was California, and the reason should be of interest to Vermonters.

"It's been almost twenty years since California voters turned their backs on their highly touted public school system and triggered its long painful decline from the top to the bottom of American education, " wrote Education Week. "The primary tool of destruction was Proposition 13, enacted by a stunning 68 percent of the voters in 1978. The act shifted the funding burden to the state by capping local property taxes and reducing by more than half the amount of local revenues available for education and other public services." (emphasis added)

Prop 13 was the fruit of a taxpayer voter rebellion occasioned by two hard facts. First, it was very hard for local government to raise property tax rates. California voters have a long history of tax rebellion, and any increase in the tax rate was likely to lead to swift retribution at the polls.

Second, thanks to a notorious assessment scandal in 1965, California governments have exceedingly responsive property assessment systems. All parcels must be reassessed on a three year cycle. In the inflationary years 1974-78 California housing assessments increased at a real rate of l0.4% per year. From 1976 to 1977 alone the assessments jumped an astonishing 20.8%.

So even with the tax rates frozen, the skyrocketing assessments meant that home owners faced rapidly increasing property tax bills. The central provision of Prop 13 "solved" this problem by decreeing that housing assessments could not be increased above the 1976 level by more than two percent a year, regardless of the actual housing market, unless the property were sold, in which case the appraised value would become the full market value.

The opponents of Prop 13 corresponded politically to the supporters of Act 60 here in Vermont. They prophesied all sorts of disasters - slashed budgets, the layoff of 270,000 public employees, abandoned services, collapsing schools. Little of that was realized (local government employment declined by only 18,000, and in a few years even that loss had been recovered ) . But a completely different disaster materialized.

Because local governments could no longer feast off the rising assessment banquet table, they went to the state capitol for aid. And they got it. Within a year state aid to local governments jumped from $9 billion to $15 billion. "This 70% increase in dependence [on state financing] means that local government has suffered a substantial loss of autonomy, " wrote historian James Ring Adams in 1984. "This decline in local self government amounts to a serious weakening of citizen participation."

Unlike today's Vermont, whose state government will be tapping the local property tax base to finance its basic per pupil grants, California's increased state aid had to come from state sales and income taxes. The demands of other state programs limited the amount that the state could send back to local government. Thus California's school spending steadily dropped from among the top ten in the nation to 35th, ten percent below the national average. And the result is what Education Week ruefully described this year as the "destruction" of California education.

Act 60's state property tax revenues may prevent the sharp decline in educational spending that occurred in California. There are, however, two major lessons for Vermont from the California experience. One is that the more the financing of public education is controlled by the state, and not by local school districts, the more local citizens will abandon what were once "their schools" to the directives, plans, mandates and fads visited upon them from Montpelier. The schools, once the focus of community support, are likely increasingly to become administrative units of a Great New System, with predictable negative results in educational quality.

A second , closely related lesson is that once the costs of local education have become a major item in the state budget, the state (Governor and legislature) can not be indifferent to local spending practices. Even long before Act 60 Governor Dean was calling for state cost controls on local school spending and a statewide teachers' contract. To that repertoire he has now added early retirement for highly paid senior teachers, and costly penalties for local districts that wish to spend well above the state average per pupil cost. The last of these items has been legislated as Act 60's "shark pool" (the forced redistribution of local revenues among towns whose voters vote a higher school budget than Act 60's basic state grant).

Reacting to the Governor's recent criticism of "receiving" towns announcing sharply increased school budgets, the pro-Act 60 Rutland Herald recently editorialized that "the power to make those decisions [about what to do with new revenues] is the fundamental substance of local government in Vermont, and even if it makes Howard Dean and his fellow Democrats nervous, Vermonters' freedom to raise or lower their taxes must be respected."

Yes, it should, and it would have been helpful if that point had been more forcefully made by Vermont's pro-redistribution editorial pages during the debate over Act 60 last spring. But alas, thanks to the state's new and vastly increased responsibility for educational finance under Act 60, every Vermont Governor, whether he or she likes it or not, will be forced to try one way after another to make local school districts control education costs. As local voters will soon find out, there is plenty of muscle in Act 60 to make sure Montpelier gets its way.

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December 1997