Insider Baseball : Cal Ed and California Politics Edition

I haven’t forgotten that I’ve got a series that is languishing at episode 1, don’t worry.

But I thought the overall community might be interested in some California state-level politics and policy analysis.

Legislative Analysis: The (Near Future) State of Public Education (and State Revenue) in California

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This post is a synthesis of my observations during three different workshops and the third general session at this year’s CSBA Conference (The California School Board Association). Speaking attendees at the workshops/session included:

Members of Capitol Advisors (a lobbying group focused on public education)

Members of School Services of California (a service/lobbying group for public education institutions)

Members of CSBA (California School Board Association, the hosts of the conference)

The Executive Director of the Association of California School Administrators

Assemblyman Patrick O’Donnell, chair of the Assembly Education Committee

A representative of the California Legislative Analyst’s Office.

One of the head attorneys for CTA, the California Teacher’s Association.

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A couple of quick disclaimers:

Except as noted, none of the below necessarily indicates endorsement on my part. This is simply what these folks predict/project/guess will occur in the next two years with regards to state education issues. In some cases I agree that their predictions are particularly likely, but noting “I think this is going to happen” doesn’t necessarily mean “I agree that this should happen”.

Economic Projections:

1. The report by the LAO indicates that the state is operating on two base projections; one is that the economy (and state revenue) is likely to continue to grow for the next four years, and the other is that there will be a mild recession during that period.

There is no current projection for a severe economic downturn nor for a boom.

So this is the default that the state legislature and the governor will likely be using to guide its decision-making. Note in particular Figure 8 on page 18 of this report shows two options: if the state makes no new commitments, only what is in current law*, the state can weather a short recession while relying upon reserves to cover the shortfall. On the other hand, if the state makes $5 billion in new commitments, under the recession model there will be an operating deficit in year three that isn’t covered by reserves.

2. Here comes the *. Under current law, education is funded at the Prop 98 guarantee. Prop 98 guaranteed a minimum level of funding for public education based upon a rather complex formula (more on Prop 98 at Ballotpedia, and here at the LAO). Since Prop 98 passed in 1988, the legislature has generally regarded Prop 98 as a ceiling, rather than a floor.

There is an important impact of Prop 98 and how its complicated formula *changes* during recession scenarios that deserves particular call out here in the projection section of this write-up. If you follow link at the LAO, and look at Figure 4 on that link, you’ll see that there is a significant impact to public education funding in California baked into the Prop 98 structure when it comes to current law.

When the LAO report says “under current law”, it assumes precisely that.

So when the LAO also says, “funding without new commitments” in its projections, they *include* the *drop* in *existing* commitments to public education that occurs automatically, by default (unless the legislature takes action) when a recession comes. Under the recession model, all of the other commitments in the budget are funded at the levels they are now, because they are outside the Prop 98 guarantee. However, education takes a net $18 billion dollar hit between 2020-2021 and 2022-2023 (!) So, in the previous paragraph, when the LAO report says “the state can weather a short recession while relying upon reserves to cover the shortfall”, the missing and important clause for public education is, “and also public education faces a huge cut over three years”.

So unfortunately the LAO analysis presents an initial impression that “if we spend only a little more money than we currently plan, we can get by without cuts”… that’s not true, it just pushes all the cuts downstream to public education.

Politics Analysis:

Multiple members of these panels agreed that some charter reform was likely in the next legislative session. CSBA is advocating for a number of particular changes. The members of the various panels had differing opinions as to which were likely based upon their own impressions.

Everyone who was willing to weigh in on politics agreed that since both Gavin Newsom and Tony Thurmond were elected and both were supported by CTA and opposed (to some extent or another) by charter activists that charter reform was likely. You can credit this to payback, or payoff, or just folks doing what they said they were going to do and that’s why they got support, depending upon how cynical you may be.

There was an interesting side observation: with court finding in Janus, there’s a feeling among the politics folks generally that union money for political activities may be impacted in the 2020 election cycle (due to dues drying up).

There’s argument from the union side that this is not happening significantly, but this may or may not impact union “war chests” for political activities in the upcoming decade. In any event, it seems the pervasive feeling among legislators (admittedly, hearsay testimony) is that it might, so legislators may act like it will whether it does or not.

Notably, *everybody* agreed that the overall charter movement has effectively unlimited funding in any race they choose to get involved in, so the consensus is that there is a political incentive for Newsom to get charter reform, of some sort, done very soon in the legislative cycle of his first term, if for no other reason than to take “battling over charter reform” off of the table as a political battle in the 2020 cycle.

This analysis makes sense to me, and I concur with it (not sure about the Janus part, but regardless I think the incentives are all pointed at “get charter reform done soon”).

Multiple members offered their own impressions of Newsom. The consensus is that Newsom admired Jerry Brown’s general approach to fiscal stability and also Brown’s ability to corral the legislature and keep them behind his agenda. Brown had broad general popularity so this improved his ability to do said political caucus wrangling. What is currently unknown is how well Newsom will be able to repeat that performance, given that the legislature now is supermajority Democratic and legislators get elected by promising to do things.

There is a fairly progressive wing of the party that will be advocating for more expensive expenditures, not education related. All arguably good things, (subsidized housing, subsidized medical care, etc.) but absent additional funding they each make education’s situation more precarious. Remember the formulas push any upcoming revenue drops on education!

Newsom appears constitutionally inclined to take Jerry Brown’s approach of (very much) taking lowball economic projections and sticking to them and only doling out surpluses at the end of the process as one-time funds. Nobody really is certain that Newsom will be successful at repeating/extending this approach, although they all more or less believed that he was going to try. So this may mean (a) more ongoing funding (yay!) (b) a continuation of lowballed ongoing funding with the potential for one-time funding blocks (qualified yay!) or (c) increases in non-education spending to make the incoming legislature happy (for the purposes of our local educational budget in the mid-term, the consequences of this may be not good).

Multiple members of these panels agreed that the incoming legislature was going to represent a political challenge as well for the legislative leadership. There are low-grade signs of intra-party wrangling as legislators are potentially picking fights with each other to establish their own intra-party coalitions. Not a lot of details were directly offered here (these folks all operate in an environment that encourages discretion on these sorts of observations obviously), but this matches my own personal observations. So there will probably be a decent number of reports of intra-party wrangling in the upcoming two-three years; part of this will be driven by reality but also part of it will be “controversy gets clicks”, so keep that in mind in consuming your reporting of state political issues.

CSBA leadership offered the (not surprising but not optimistic) observation that most of the incoming legislature is under-educated on education issues. This means that a lot of advocacy will be necessary to educate folks in the state Senate and Legislature about public education. There was a *lot* of asks for conference attendees to get involved with their local representatives and make “advocacy at the state level” a priority for the upcoming two years. Thankfully we’ve got Anthony Portantino in our camp on this one.

CSBA is pushing on three classes of advocacy. The first is getting the legislature to treat Prop 98 as a *floor*, rather than a ceiling. This branch of advocacy has two pathways; generally asking for commitments to public education above the Prop 98 guarantee to be encoded in ongoing budget law (this will help very much to remove public education as the main balancing force in the state budget when recessions hit, which is good for us but has consequences for state budgeting), and pushing very hard on the Full and Fair Public Education funding ask as a longer-term advocacy position.

Both of these would have huge (and good) implications for our district. Both of them would have enormous asks for the state budget, though. Since the new legislature mostly ran not-on-education issues, expect these two things to charge head on into each other and perhaps go nowhere?

The second is on charter reform.

The last is on getting the state to take on more of the pension cost (which arguably is part of the Prop 98 conversation).

Policy Predictions

On charter reform, I will break down CSBA’s advocacy list:

Improved Charter Governance and Transparency
* Currently the Ed Code does not explicitly say that many California regulations apply to charter schools. Notable among this are the Public Records Act, the Brown Act, Government Code 1090, and the requirement to file Form 700 for officers of charter schools. Charter schools (some) argue therefore that they don’t apply. Multiple people expect that most if not all of this will be written into a charter reform bill. My predication: extremely likely, the arguments against are simply very politically weak.

Prohibit Changes to Petitions on Appeal
* Currently charters can submit one petition to the LEA, amend it if they get critiques before they submit it on appeal to the county, and amend it again if they get critiques before they submit it on appeal to the state. CSBA wants all applications to go through the appeal process with no changes. My prediction: this particular request is less likely, but some form of approval reform is on the other hand very likely, which may incorporate changes to the appeal process.

Provide District with More Time to Act on Petitions
* Charters hate this one, districts really want it. The cost to the legislature is really low; all complaints will be executed at a lower layer of governance. Unarguably the current process is poor. My predication: this is extremely likely unless it is bargained partially away in committee for other concessions from the charter side. Again, the petition appeal process is its own problem, these last two are just particular symptoms.

Show Why Charter Cannot be Done Within District
* Broadly supported by traditional public school advocates. In most iterations of trying to encode it into law, it would probably close a non-insignificant number of charters that currently exist, or introduce a huge swath of lawsuits as districts argue with charters on this point.

Nobody likes parents yelling at them, so politically savvy legislators may pass on this one just to avoid the petitions and email. However, the legislature is under-educated in this particular phenomenon compared to school board members. My gut feel is that this is very, very unlikely. If it happens it will have enormous implications.

Seek Flexibility for District Innovation
* This is the counter to the accountability movement. It’s also my preferred method of countering the charter movement: rather than arguing they should have “more accountability” (outside the general government code requirements that I think they should follow as iterated in the first bullet point), we should all be getting behind the “accountability movement hasn’t shown improved educational outcomes, arguably the opposite, let’s stop having the state put so much onus on local districts”. That said… likelihood: within an epsilon neighborhood of zero. Probably closer to negative kabillion. Different layers of governance *love* telling other layers what to do, particularly when they don’t have to pay for it. The accountability movement is not going away in the next four years. I would be ecstatic if I was wrong here, but I expect I’m not.

Consider Impact of Charters on District
* This would enable public school districts to reject charters for essentially whatever reason they want. People generally think this is a good idea. But school boards, whatever the ed code says, can reject a charter if they want and they don’t have to say why they voted “no”, so in practical terms this doesn’t change anything from the status quo. What matters in this problem space is, again, how the appeals process works. I expect this to be a loud part of the wrangling over the charter reform but to have little to no actual impact on the outcome of whatever the reform looks like. So it’s likelihood depends upon who gets to sell it as a concession and what they get for it. Actual likelihood: irrelevant.

More Reliable Statewide Data
* Having charters have uniform reporting requirements. Great idea. Costs money at the state level, goes against the whole “laboratory” idea of charters originally in the minds of some, which is weird, but still the case. Likelihood: lower than some of the other options. A bargaining chip that is likely to be traded away in some form or another.

Fully Fund Oversight Activities
* This is a big one that’s potentially doable. Right now charter oversight is a hot mess of different layers of government doing different types of oversight. Districts have an incentive not to do it because you have to hire staff to do it and the oversight fee doesn’t cover the cost. It’s hard to argue that it shouldn’t be done, particularly when it comes to things like LCAP filings. But it’s enough of a fuzzy ask that I can’t really assess its likelihood. Put it at the “something will happen that can be tagged as this, not sure what, may be part of the approval/appeal process.”

There’s also just a movement to get rid of the appeal process entirely and require charters to be authorized by their home district. CSBA isn’t pushing that as much (probably because they don’t think it is feasible).

Whatever happens here will probably have implications for 2020 anyway. Since politics will be involved, the outcome might be an interesting signal event.

Revenue for Education:

So here’s the real 10,000 foot view. Right now the big impacts on public education are federal mandates with insufficient federal funds and state mandates with insufficient state funds. There is a huge push statewide to increase base funding. There’s little room in the state budget to increase state funding without cutting back on state discretionary funding, and there’s some obvious political incentives not to do that.

How to square this circle?

(a) The state can bug the feds to spend more. California might do this in their general stance of “argue at the Trump administration”, but the likelihood that state action alone here will move the needle is probably negative. However, SPED funding in particular is a nationwide problem.  Secretary DeVos has considered defunding the Office of Civil rights, but Congress wisely refused.  Such a move would be a disaster for special education. There’s always the possibility that a coalition forms out of this that can do something. Impact: huge. Likelihood: low, but within the realm of possibility.

(b) The state can take on more state obligations. This depends upon how well individual school board members and constituents advocate with the legislature. Given the turnover, I think this will be hard. Given the pressure on school districts and the potential for an economic downturn *and* the balancing of the state budget on education’s back formalized by Prop 98, I think something has to give, though (especially if a recession does hit). But this means slowing other new commitments which is a hard ask of new legislators.

(c) The state can remove some barriers to local funding, by lowering the threshold for local tax movements. CSBA is asking for this (analogous to the change with Prop 39 that lowered the barrier for school bonds to 55%, lowering the bar for local parcel taxes to 55%). Obvious equity issues. Likelihood… well…

… that ties into The Real Big Question. Look at me, I saved the biggest story for the bottom of this huge screed.

The Real Big Question

Before the 2018 election, signature gatherers for split roll *slowed down* their signature gathering to only get enough signatures to put split roll on the ballot in 2020.

Split roll removes the commercial protections in Prop 13. Needless to say, this is a nuclear grade issue for several antitax organizations in the state, as well as the business community.

The revenue implications for this, if it goes on the ballot by itself with nothing else happening, are gargantuan. The tax implications are as well. The LAO summary analysis is here.

Businesses routinely complain that California is a “high tax state”, which is true for basically all of our other taxes that impact business… but Prop 13’s inclusion for property taxes makes our net impact on business comparable to a lot of other states.

This is why, in spite of the “California has huge business taxes” narrative, that businesses still stick around and do quite well here.

However, it’s certainly the case that if split roll goes on the 2020 ballot and passes all by its lonesome… suddenly we really *will* jump to an actual enormous burden overall on commercial entities, at least the mid- to large-ones (there is a small business carve-out in the split roll language). That will be a pretty big incentive for commercial entities to jump ship.

But.

Passing taxes at the state level is hard and unpopular, particularly with the SALT deduction taking a hit on the Federal Income Tax deduction. Split Roll isn’t owned by the Democratic party, legislature, or the governor. If they just sit there and do nothing, it goes on the ballot as it is qualified. If it passes, we see a huge uptick in revenue, and the antitax movement can only make so much blame stick to the Democrats. But… we might have to cut back on other taxes to prevent an economic slowdown.

So… what happens now?

Well, insider baseball time… it is possible for the legislature to negotiate away ballot initiatives (this was done in 2018, that article aside I agreed with getting this one off the ballot for sure!)

So what might happen here?

There’s a possibility for a grand bargain. The Governor can sit down with the business community and the authors of split roll and negotiate some significant change in the business tax code that comes out with a smaller impact on business on net, but still increases revenue. Arguably a revenue neutral arrangement would even still be better for the state, since most business taxes are pretty volatile but property taxes aren’t.

Bargaining position analysis: the governor would be in the driver’s seat here, and could potentially get business to agree to an increase in property taxes and a decrease in other taxes to offset some of the cost. The anti-tax folks are definitely in the back seat, but there’s another point to consider: they have a huge amount of strategic interest in backing Prop 13 all the way to the wall and beyond. If the governor doesn’t cut them what they think is a good enough deal, they may prefer to bank on their ability to convince the California electorate that Prop 13 ought not to be messed with. Prop 13 is pretty popular. But 2020 is going to be a pro-liberal-government v. pro-conservative-government election, so it’s a risky call to fight a ballot initiative that is likely to be popular among the anti-Trump crowd in an election where the anti-Trump crowd is going to make up more than a majority of the votes.

Tricky negotiation, and undoubtedly one that Newsom would take a huge amount of flak from the left if he went through with it (expect to see “governor caves to business interests” headlines). On the other hand, if split roll goes to the ballot and fails, he loses the opportunity to move a big chunk of California’s revenue from unstable income taxes to more stable property taxes.

Which way will he jump?

Heck if I know at this point.

Newsom has so far not signaled anything. But this is probably the single most important story here.

Whatever happens with split roll will probably also impact whether or not local tax law changes occur. This may or may not be part of the bargaining, but it will probably be an outcome farther down the road if it isn’t part of the specific agreement.