Taxes Taxes Taxes

“There will be critics who deny that Sac City Unified is financially strained. So I have commissioned an independent budget review and will be inviting district stakeholders to help design it. However, believing our financial challenges are real, the board and I have already reduced costs by $4.3 million, starting with reductions to our central office even though we already operate one of the leanest offices in the region.” Superintendent Sacramento Unified School District

Greg Beale
Sep 3, 2018 · 10 min read

This is California public education in a nutshell. A proud and well respected urban school district, that for over a century has ably served its community, is in a constant state of budget crisis.

If you read this you see the “inherent and constant paradox” that plagues ALL of California education.

Public education used to be funded by a combination of local taxes (Property), state taxes (income and some sales). But, the health care costs before 1970 were negligible. In fact, they were so small that “medical benefits” were not even covered.

Now in those “good ole days” the pay and benefits for teachers made most of them hold two jobs. Many worked part time and taught full time. Everybody had a summer job. That was the state of teacher pay when I first started in 1974.

But the Russians had launched a satellite in the 60s, and the Cold War was raging. Studies showed that America’s educational system (if you could call it that) was rural, disjointed, had no national focus and woefully underpaid teachers.

So the national government finally got involved in education. Conservatives fought like mad to stop this, reasoning even in states that education was local government (cities and counties) responsibility.

However this was insufficient to fund education and compete on the world educational level.

At the same time manual labor, manufacturing, was using more and more labor saving devices, as competition with the rebuilt manufacturing sectors of Europe and Asia rebuilt more modern plants, with less reliance on uneducated labor.

We woke up in the 70s to a revitalized Japan, and Russia and Germany, and China who suddenly were competitions with us for manufactured products.

And their plants were newer, having been rebuilt after the War (remember that) were more efficient and had lower labor costs.

America was right in stressing higher educational levels for its workforce, as “automation” eliminated job after job.

But America, as usual, did not modernize its education model. We retained the 1870s local county based educational model.

And, as the competition got more damaging from world markets, we began doing a suicidal thing; conservatives desperate to end the New Deal (that was still the major political movement in the United States) hit on a winning formula.

The inflation and stagflation of the 1970s and 80s had reduced America’s purchasing power. And the recessions that followed, a recession and inflation during the mid 70s, pushed states like California, with large populations that were demanding civil rights and more access to public education for people of color, into passing several tax cutting initiatives, in a system that actually allowed the public to vote on their own taxes.

That’s right vote on their own taxes.

Conservatives who hated the New Deal for the opportunities it gave ordinary people, whose corporations had to pay the taxes that they claimed gave them a disadvantage in competitions with cheaper products for China and Japan (they were mostly right) turned on public financing to cut costs.

Proposition 13 was a drastic tax cut, a shift in public education from property tax support, to no support, that gutted the integration efforts of public education in California. It was copied across the country, as states foolishly cut their schools, which ultimately reduced the power of its economy because other countries had figured out that an educated population could compete much better in a world economy.

But America, that conservatives wanted to return always to the good ole days, was turned (particularly by the administration of Californian Ronald Reagan) from a government that helped people, that achieved great things (ended a Depression and won the worst war in human history) to an enfeebled giant that still cannot solve the problem of having the most expensive medical care system in the world, with rationed medical care the only option for millions.

The cause? The schools.

In California this lack of base funding, that has existed since Prop 13 passed, created a chronic budget disaster for local school districts.

The state has tried countless schemes to cut costs. None of them have worked because the base, the financial base for schools, is about 20% short.

That’s right 20%!

How do I know, I was a Superintendent. I also was in the District office for almost 10 years and dealt with issues that always, I mean always, was trying to pay for something with 20% less funds to do so.

Health benefits have become a monster. The ACA is now emasculated thanks to the Trump administration and can no longer help financial strapped districts. Special interests, yes greedy Doctors, have united to destroy any concept of government health care (used by ALL competing world economy nations).

Then the demographics.

After WWII every nation in the WORLD, I mean every nation except the United States had a flattened manufacturing sector AND millions of deaths.

The United States for the simple reason that its citizenry was never attacked, had an intact workforce, with the exception of 400,000 military deaths. Germany, Russia, Japan, Western Europe lost 50 to 60 million people.

This meant qualified technicians, trained workers were dead.

For thirty years Europe and Asia could not compete with the United States, who did not have to rebuild, and had the human capital to out produce the world combined. And there was a boom, which had another feature, a Baby Boom, from the end of the war to about 1965 that fueled the economy with young workers.

And in the 1980s it was slowed by a world that was healing, that did not need the bumper crop of people to run its machines, because now machines ran its factories.

Inevitably the Baby Boom, in the 80s and 90s ran into recession after recession, as supply and demand caught up with it.

And what did the conservatives blame this economic slump on?

The New Deal of course and the schools!

The schools? Why the schools?

Most people can’t get to Washington. The Federal Government is over there…You can elect a congressmen and a President, but you can’t go to Congress and get up in a meeting an vent.

You can with local (remember our schools are still administered and paid for by a 1800s system) schools. Local schools in America are still the most democratic on earth.

And America vented its misplaced anger centered on endless recessions, on local schools and teachers. They were all the public could get at.

It didn’t help that the Supreme Court decided to end cultural segregation using the schools to solve America’s racial divide. The schools did nothing to deserve this, nor were they funded adequately to solve a centuries old racist society’s problems.

And of course the school’s integration efforts rapidly failed. Private schools sprung up in the south, with racist parents more willing to pay for private education than have their kids go to school with “those people”.

The segregated school system stayed segregated, children of color gained entrance to schools they once had been excluded from, to rapidly discover were as segregated as before.

And the Supreme Court’s decisions could not touch the real estate segregation that had gone on forever, reducing vast areas of once proud cities (Detroit for example) to urban blight that as usual gave people of color way less opportunity for economic improvement. And Prop 13 in California indirectly supported segregation in housing.

And then, the conservatives turned on the schools of California. California that had the beginnings of an integrated society, primarily because a “minority” Mexican Americans had been here first, had money to some extent, and lots of economic power. It was like, doubling down on racism.

In a full court press to end any advantages people of color had, the Reagan revolution, that really was driven by white privilege, attacked public programs at every turn. A big target were the public schools.

So one tax cut after another were passed with the promise that “trickle down” economics would work.

IT DIDN’T!

So today Prop 13 still sits in effect, retarding any real efforts for school finance reform. A local school district, like Sac Unified quoted above, used to (before Prop 13) be supported by about 80% local sources, property taxes, bonds etc.; and 20% state taxes. Now it is upside down, 80% from state income taxes and 20% from local sources.

And property values have skyrocket. And people sell their homes for millions more than they are worth in a Prop 13 fueled economy so out of balance that even conservatives are worried by the huge housing shortage that has developed. Prop 13 rewards the long time home owner, his property taxes are capped, while his neighbor, buys the exact same house, and pays reassessed property taxes. However, there is a cap on ALL properties.

Moreover Prop 13 has always rewarded landlords, who predictably took their tax bonanza, put it in their pockets, and RAISED RENTS.

In a real sense Prop 13 rewards old developments getting older as they represent a gold mine since as long as they are owned by the landlord, and his family (you can pass along your tax advantage) there is absolutely NO INCENTIVE to invest in new rental housing…NONE!

And the inevitable reduction in affordable rental space comes, driving people out of the cities, sometimes hundreds of miles away, to find affordable housing, with huge commutes, that burns up our limited gas supply faster and adds to global climate change.

It is a chain reaction that is the end of times!

The proponents of Prop 13 said they would lower rents. Why not, because Prop 13 repressed new developments, since they would pay higher property taxes. So run down rentals became the norm, and made a lot of landlords very rich because of the supply and demand; not enough rentals, the prices of rental has gone way up! Landlords have the best of all worlds, a Prop 13 tax cut that is endless, and a Prop 13 shortage of new rentals that makes their little gold mine grow every year.

Meanwhile the schools starved. Once proud local schools, that admittedly were segregated but well funded, now were hurting for money all the time; Sac City Schools was once looked upon as the example of public education for the nation.

Now, public school districts throughout California, in a booming economy (California’s economy is the sixth largest in the WORLD), are all in deficit spending.

The culprit, according to conservatives, pensions!

The real culprit, tax cutting schemes led by Prop 13!

Really, teacher pensions, that still are among some of the lowest compared to the retirements of other educated workers, are attacked as an “unfounded” liability?!

If Prop 13 was not in effect, local school districts could pay their teachers better and pensions would not be an issue. Why, because the inflation of property alone would have fueled a commensurate increase in property taxes, even with some tweaks to keep people from being taxed out of their houses.

But the inflation in home prices would not have occurred, the ridiculous money making of landlords would not have happened.

Prop 13 was BAD LAW when it was written and is bad law now. It represents a huge shift of wealth from public entities to landlords!

And Superintendents and local school boards don’t have a chance.

Finally, the end game is happening right now. Baby boomer teachers and administrators are retiring at record numbers, and there are no teacher candidates to take their places.

Birth control in the 1960s and on, have reduced the growth of the younger generations dramatically. The baby boom was based on an average of 3 children per family, younger generations are about 1.5 and lower. This massive reduction in the young and the higher education rate of the young, has opened opportunities in more lucrative professionals in an increasing “teacher flight” of students away from a career in education.

Few new teachers mean fewer dollars paid by them into pension funds, while the baby boom retires, creating a huge gap in funding, an unfunded liability that won’t stop until the baby boom dies.

Now this budget gap cannot be addressed by simply cutting pensions, they are a vested right and the taxpayers are on the hook to pay them. And, in the scheme of things, in the world’s sixth largest economy, the capacity of paying them exists for sure.

Enter the conservatives, who see yet another chance to spread their hatred of government and particularly of government employees, who already have started (like our conservative champion Dan Walters) a campaign blaming public educations ills all on the retired school teacher, who on average gets about a $35,000 a year pension, compared to hundreds of thousands of dollars for like situated educated workers.

Lawyer and doctors have pensions, fueled in part by their huge home values, in the millions. And many of them keep working, driving their wealth even higher.

And teachers…remember it wasn’t until the mid 1980s that teachers could even participate in the Medicare and Social Security system since most were covered by lifetime medical benefits (which were a lot less in 1980) and state pensions. Again these even for the times were very modest if not downright puny.

I can remember as a child, watching retired teachers limping into class, in their 70s and 80s, forced to substitute teacher because their pensions were not enough to live on (no social security remember). Today it is better, but certainly you can’t join the country club!

So what to do? How do we solve this?

We do what every other “developed country” has done, we begin to socialize our base economy. We finally go to a single payer health care system that would reduce the benefit squeeze on districts immediately. We overturn Prop 13, and replace it with a graduated tax process, that still has an inflation break to protect older homeowners, but taxes at a higher rate and then encourages apartment building and home building closer to the cities with state grants and incentives that are delivered over a long period of time. Construct the property tax system to reward investment in new house and apartments and discourage hoarding of property values.

There are tax experts a lot smarter than me that can come up with plans to encourage urban development that stops the sprawl that only makes global warming worse.

We got ourselves into this mess, we can get ourselves out.

Greg Beale

Written by

Stanford grad, BA Political Science, MA from Sac State in Government. 36 years in public education as teacher, coach, athletic director, and administrator.

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