Governor should fix a real problem, not diapers

I know Gov. Newsom is trying to focus on affordability in a variety of ways, including free lunches for all students a few years back. The devil is in the details, as they say, as there was no money for staffing which left districts scrambling to fill the positions to make and distribute the free lunches, with many going to waste.

Diapers are in the same vein. First, let’s state the obvious. What new parent does not have a box of diapers already when they are about to have a baby? Maybe one or two, and I’d like to meet someone so casual about such a life-changing event. I mean, we are talking about people who just became parents, not the children themselves. A box of such diapers is about $100, which is a drop in the bucket for new parents and all the expenses they will meet over the next two decades of that child’s life.

California at its finest.

In the meantime, San Mateo County officials are lobbying for $157 million that the state just can’t seem to guarantee even though it belongs to the county. That’s a fact, despite a representative from the California Department of Finance, who testified during a recent state Senate subcommittee hearing that the VLF funding was classified as a “discretionary expenditure” that wasn’t appropriate “in the context of the current fiscal situation.” 

Let’s talk about this. San Mateo County is owed $119 million this year, and $38 million from last year through a complicated and bizarre process cooked up two decades or so ago when the state was in the throes of trying to extricate itself from its ongoing shell game of its budgeting process and a short-sighted and silly reduction in the vehicle license fee back during the dot-com era.

Before I get to that fun and excitement, let’s bring attention to what the money would fund here in San Mateo County: police, fire, parks and recreation, homeless shelters, mental health services, etc. Heck, I’m sure there is even a little bit of money in there to provide diapers for those in need. While the governor shows a ridiculous interest in spending about $20 million on those unnecessary diapers, his Department of Finance rep says the money owed to the county is not appropriate.

You can’t make this stuff up.

So here goes with the explanation of VLF, and it will give you an indication as to how this state can’t get out of its own way.

In 1988, Californians passed Proposition 98, which guaranteed minimum school funding. The state created the Educational Revenue Augmentation Fund, also known as ERAF, in 1992. That shifted lots of local property tax revenue from local cities, counties and special districts to local schools and community colleges, which meant less of a need for state funding. So the state can meet the Prop. 98 obligation through revenue that is not its own.

Here is where it gets extra tricky. Gov. Gray Davis decided to reduce the vehicle license fee when the state’s budget was flush with the capital gains of the dot-com era. When that boom went bust, Davis tried to revert the fee to the prior level, which led, in part, to his recall, and the election of Gov. Arnold Schwarzenegger, who in 2004 had to pick up the budget pieces. Enter propositions 57 and 58, which together authorized bonds with the aim of eliminating the state’s deficit (spoiler alert: didn’t happen) and also creating a Budget Stabilization Account (a rainy day fund). One of the mechanisms of Proposition 57, was to create a way to repay the bonds by redirecting a quarter-percent of local sales tax revenue from cities and counties to the state. Local officials were told that this would be the last time, after years of using local government as an ATM. Thus was born the notorious “triple flip.” Local sales taxes went to the state, property taxes went to local governments and the state paid the schools their money. This lasted until 2016, when the bonds were finally paid back.

To add another layer to the fun, the state also created the VLF swap in 2004. Before Davis’ VLF reduction, local governments got car tax money from the state but the state reimbursed the missing amount after Davis’ reduction. In 2004, that game was up and the state instead replaced the VLF revenue with additional property tax allocations, which meant local government became more reliant on property tax and schools became more reliant on the state for funding. This worked for a while until recent changes to school districts and how they are funded through the Local Control Funding Formula adopted in 2013. The LCFF was to dramatically reduce the categories of school funding and make it simpler for districts to ensure money is available for certain student populations. For background, what was previously called revenue limit is now referred to LCFF, or state funded, and what was called basic aid is now referred to community funded.

Here it is in a nut. A school district’s funding status changes based on a formula for local property tax revenue and a LCFF funding target. That is based on enrollment and numbers of students who are, for example, English-learning, low-income or foster youth. Grade levels also count since it costs more for older students. It breaks down like this, if local taxes are lower than the state funding minimum, the state fills the gap and it’s state-funded or LCFF. If the local taxes are higher, the district keeps the excess revenue and becomes community-funded.

A decade ago, San Mateo County had approximately 12 districts that were state funded, but this has dropped to only four. That allows the remaining community funded districts to retain excess local revenue while receiving little or no state aid. Because the county has exceptionally high property values and strong property tax growth, large amounts of local property tax revenue flow through ERAF to schools, reducing the state’s direct education funding obligations while the county and city governments became heavily reliant on the VLF swap’s “property tax in lieu of VLF” allocations, which also grow with assessed property values. One may contend that the county’s problem is that it is too rich, and its property valued too high but it doesn’t account for the original idea behind the VLF. Vehicles use public infrastructure, roads, police, etc. and the tax was to help for that locally, yet it hasn’t been delivered properly since the VLF swap. Besides, high property values creates its own set of problems for regular folks.

What once was a tax collected on vehicle registrations within the county was transformed in 2004. It is now tied to the local property tax distribution system and school funding, which is the cause for a particularly unique issue in San Mateo County. So when the state says it is no longer obligated to give us the money, it’s only because it says that is the case and its own history of budget shell games and ineptitude.

So here is the quick summary: Proposition 98 forced the state to provide money to schools, so it created ERAF to direct local property taxes to schools so it wouldn’t have to fund them. The triple flip meant a quarter-percent of sales taxes went to the state to repay a bond, then property taxes went to local governments, and the state paid for schools. The VLF swap meant local governments didn’t get car taxes anymore, but got more property tax instead. LCFF meant more community funded school districts could fund locally through property taxes, with the state backfilling for certain districts who didn’t qualify for that funding mechanism. As those dropped because of higher property values, the amount of state money disappeared and was not replaced. Cut it out, tape it up.

If you’re still with me, let’s get back to the origin of this long explanatory piece. Diapers. How about we talk less about giving away diapers to people who don’t need it, and more about how we can make sure that the money owed to San Mateo County gets sent here? It may be too complicated to fit on a podium sign, but it’s the business of our government, indeed our governor, to ensure the tax revenue gets where it is supposed to go.

You want to talk about affordability? How about ensuring our local governments can pay their bills without asking us for more money?