The California Tax System and Education

income-inequality-bowl

A tax system is considered adequate if it collects enough revenue to pay for the services required by residents and policymakers. One threat to the adequacy of a tax system is a structural deficit. In states with a structural deficit, revenues do not grow at the same rate as the costs of providing government services. If revenues do not keep up with these increased costs, the state must either raise taxes or cut services. The main area of thought on tax fairness is the ability to pay principle. The transparency of a tax system indicates whether or not information about the tax system is easy to obtain. Available information should include who and what is taxed, the process for making tax decisions and how the funds collected are spent.

In developing a plan for paying off its outstanding obligations, the Legislature may want to consider how these payments will affect school and community college spending (LAO, 2014). When assessing a tax system the various ways the stakeholders are taxed, from property taxes, sales taxes, income taxes, and lotteries, the following five criterions come into play:

  • Revenue Growth: Revenue sources that “grow along with the economy” are what stakeholders want. The growth factors for property taxes are recently sold properties, newly built and property improvements, parcel and Mello-Roos taxes (Lao.ca.gov, 2012, p. 27).
  • Revenue Stability: This is when the property tax is a stable revenue source and remains “relatively stable from one year to the next”. These stable resources assist the government plan for future needs more effectively (Lao.ca.gov, 2012, p. 28).
  • Simplicity: This is based on transparency and the tax payer’s ability to understand the tax system. The more complex the system, the more expensive and difficult it is for the government to administer.
  • Neutrality: This is the idea that the “ideal tax system is one that alters decisions – about what to buy, what products to make, and where to work or live – as little as possible”. Economists prefer these neutral taxes for it puts the people and businesses in the “best position” to make sound investment decisions for their personal and economical needs (Lao.ca.org, 2012, p. 30).
  • Equity: This criterion relates to how taxes affect taxpayers with different levels of wealth or income. The two standards that Economists use are horizontal and vertical equity to evaluate taxes. An equitable tax system would all property owners at the same rate (Lao.ca.org, 2012, p. 32).

The best tax system would be neutral and equitable for all tax payers. It is difficult to see those with less equity in their homes pay the same amount of taxes that someone who has more equity in their home. Also, if the tax system is neutral, it  will serve the growth of all individual’s economically and personally. Who doesn’t want their state’s tax system to help them, help their students, and help the economy?

References

Brimley, V. , Garfield, R. & Verstegen, D. (2012). Financing education in a climate of change.

Eleventh edition. Boston, Pearson.

Lao.ca.gov. (2012). Understanding California’s Property Taxes. Retrieved from

http://www.lao.ca.gov/reports/2012/tax/property-tax-primer-112912.pdf/

Lao.ca.gov. (2014). The 2014-2015 budget: Proposition 98 education analysis. Retrieved from

http://www.lao.ca.gov/reports/2014/budget/prop98/proposition-98-budget-

021414.pdf/

Fiscal Equity for all whether you’re a Prince or a Pauper…Serrano I and SB90

serrano_SB90

Prior to the 70’s, there was a large disparity in funding to poorer neighborhood schools than to their wealthy counterparts. Many parents felt their students were not receiving an equal education under their Constitutional rights due to this inequity of funding to certain area schools. One parent in particular decided to take action and become the Robin Hood of this cause by bringing to light that the paupers should be educated as equally as the prince and princesses of California.

In 1971, in Serrano v. Priest (Serrano I) the state’s high court ruled that the school finance system violated equal protection because the property tax base of school districts varied widely, resulting in very different amounts raised for schools, on a per-pupil basis. These disparities in wealth and education funding as a result of local property taxes violated the 14th amendment. Serrano originated in Los Angeles County Superior Court as a class action suit on behalf of a class of all California public school students.

The case reflected a few issues of the times: inadequate resources and funding inequities between school districts in California were becoming a reality. Serrano, a parent, filed suit against the California finance system, stating that the fiscal inequalities across the state denied equal resources to all students; rich students and poor students and the battle against discrimination. Property value determined a district’s wealth as evidenced by the poor districts receiving more state assistance and the rich less. Serrano’s case was built upon the premise that without equal funding and fiscal protection, all students will not receive an equal education. Serrano argued his case by comparing two demographically different school districts in Los Angeles County; Baldwin Park and Beverly Hills (FindLaw, 2008). And what was the reason for this disparity? Beverly Hills had much greater property wealth than Baldwin Park. It was differences like this throughout the state that fueled this disparity and kept all students from receiving an adequate and equitable education.

The Senate Bill 90 of 1972 followed Serrano I. The bill established a system of revenue controls that limited a district’s general purpose revenues. Each district’s revenue limit was based on the state aid and local property taxes it received in 1972‐73. Each year, districts’ revenue limits would be adjusted for inflation. So called “high wealth” districts would receive lower annual inflation adjustments while “low wealth” districts would receive higher inflation adjustments. This bill established Average Daily Attendance (ADA) and per pupil funding rules.

Over time, this idea meant to bring districts equity in funding. The strategy was known as the “squeeze formula.” Critics at the time estimated that this method would take 40 years to achieve the level of equalization the court required.   While SB 90 was not a bold step toward revenue equalization, it was the first step in a process that reversed school finance policy in place since the early 1900’s when the legislature assigned property taxes to local governments (Rueben, 2003). The effect was an increase in the foundation level from $355 to $765 for elementary and an increase from $488 to $950 for high school students (Educacy, 2010).

Serrano I and SB90 were at the forefront of attempting to provide all students with fiscal equity to receive an adequate and equal education around the state.  This does not only affect the poor and wealthy areas but also minorities and people of other races. Even though this was an honest effort, it wasn’t as effective as was hoped. Equity is still something

References

Educacy. (2010). CA Education History: How did we get here? Retrieved from

http://www. Educacy.org/ca-education.history.html/

Rueben, K. & Cerdan, P. (2003). Fiscal effects of voter approval requirements on local

            governments. San Francisco, CA: Public Policy Institute of California.

(2008, March 26). Separate and unequal: Serrano played an important role in development of

school-district policy. FindLaw. Retrieved from http://corporate.findlaw.com/law-

library/separate-and-unequal-serrano-played-an-important-role-in.html/