K-12 to dodge budget tornado

The Sacramento Bee is reporting and sources are confirming to me that Gov. Jerry Brown will spare K-12 schools and community colleges further cuts when he presents the state budget on Monday – but only if voters continue the $8 billion in temporary taxes that are set to expire this year.

That scenario would be a big victory for schools in a year in which other parts of state government are expected to get whacked to wipe out an anticipated $28 billion state budget deficit over the next year and a half.

That’s not to say K-12 schools won’t face further problems; federal stimulus money that has protected districts somewhat the past two years will dry up this year, and many districts already have greatly expanded class sizes and shortened the school year by five days.

Proposition 98 funding is directly tied to state revenue. The expiration of the temporary taxes would lower the state’s minimum obligation by $2.2 billion, from $49.7 billion to $47.5 billion – a cut of 4.4 percent, according to LAO projections.

In real dollars, K-12 schools have faced a 12 percent cut in state funding – $6.8 billion – since 2007-08. Other state programs on average have not been reduced as much, either because cuts never happened, as with prisons, or additional federal funding never materialized, as with Medi-Cal, leaving programs in the red. So it makes sense not to apply future cuts across the board – and further deteriorate schools.

It also makes political sense to make full funding under Prop 98 contingent on voters’ approval of temporary taxes, since education is the one area that constantly draws the most support in polls on additional state spending.

Approval of tax extensions would technically be a new source of revenue. Under Prop 98 rules, K-12 schools and community colleges should be entitled to 50 percent of the $8 billion, with part of the money going toward repayment for past cuts to education. But it’s unclear whether Brown will go for that. The Bee reports that revenue from continuing the .25 percent temporary surcharge on the income tax would go to the schools, while the other temporary tax extensions – 0.5 percent on the vehicle license fee and 1 percent additional sales tax – would go to cities and counties in exchange for transferring state responsibilities to them.

Ace in hole: Tax Bush-era breaks

Writer and occasional TOP-Ed contributor Peter Schrag reported this intriguing figure in a column in the California Progress Report this week: Continuing the Bush-era tax cuts for the top 5 percent of California earners will save those 888,000 taxpayers about $20.5 billion this year ($14 billion for the 1 percent earning an average $1.775 million and $6.5 billion for the 4 percent earning an average of $310,000). That, Schrag noted, equals about three-quarters of the $28 billion deficit the state will face over the next 18 months, or the entire deficit for 2011-12.

Schrag doesn’t suggest hitting up the rich for the full amount, but he suggests – and Gov. Jerry Brown should consider – grabbing a piece of it for the next year or two.

Instead, at this point, Brown reportedly will be asking voters this spring to continue the $8 billion in temporary taxes due to expire this year: 0.5 percent extra on  the car tax, 1 percent additional sales tax, and a 25 percent increase in the income tax rate – and offer a harrowing scenario of cuts to services if they are rejected.

Brown will be asking Californians to share the pain – a theme a raised at his inauguration. “The year ahead will demand courage and sacrifice,” he said. You know, like his great-grandfather, August Schuckman, who made the dangerous trek from Missouri to California in the 19th century, we’re all on the same wagon train and have to pull together for survival.

But, as Tony Quinn wrote in another column Monday, California voters have already rejected extending those taxes and he doubts they’ll change their minds.  Quinn christens the taxes the Working Families Tax Increase because they’re supposedly regressive (except for the sales tax increase, they’re really not). And he fans resentment over new taxes by citing a few cases of pension abuse. Expect more of that argument if Brown doesn’t deal with pension reform, as he has promised.

Taxing a portion of the tax cuts on the richest 5 percent could make asking everyone else to continue their temporary taxes more palatable. The Obama-GOP deal on the Bush tax cuts will add enormously to the federal deficit. Taxing some of that $20 billion at least would reduce California’s deficit. That’s a fair request.