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Prop. 30 fact check: California's budget has grown, so how are we broke?

Fact check No. 3: State spending as a share of California's economy has dropped and is now down to its lowest levels since 1972-3. Though lottery money does go to schools, it's a drop in a very large bucket, California finance officials say.
Fact check No. 3: State spending as a share of California's economy has dropped and is now down to its lowest levels since 1972-3. Though lottery money does go to schools, it's a drop in a very large bucket, California finance officials say.
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Next up: We examine the claim that Prop. 30 money would be wasted.

Background: With less than a week to the Nov. 6 election, there's a lot of information - and misinformation - out there about Prop. 30. The measure, supported by Gov. Jerry Brown, would raise sales and income taxes in order to avert $6 billion in primarily education cuts.

Prop. 30 is written into the enacted 2012-13 California budget, which presumes that the measure will be approved by a majority of voters Tuesday. Over several posts, we try to break down the proposition and examine the big questions that have been raised in political ads these past few weeks.

Read the introductory post for details on what Prop. 30 does and what happens if it fails. 

Arguments against Prop. 30: The arguments fall under four main categories: no new taxes, the measure is flawed, the money would be wasted, and schools are a mess. These positions are primarily supported by the Howard Jarvis Taxpayers Assn., the National Federation of Independent Business California and Small Business Action Committee.

3) The money would be wasted

Claim: This is just a blank check for the fat cat politicians in Sacramento. State funding has gone up and yet politicians are crying wolf and saying the state is broke. Whatever happened to the lottery?

General Fund spending has dropped by more than $11 billion in the last five years. At its peak in 2007-8, General Fund spending was close to $103 billion. That number is now down to $91.3 billion, says H.D. Palmer, a spokesman for the California Department of Finance. (Check out those budget summaries here and here.) According to the 2012 budget, General Fund spending as a share of the economy (meaning per $100 of personal income) is down to its lowest level since 1972-3. And total state spending as a share of the economy is at the same level as it was in the mid-1990s.

Though the overall budget has grown, spending on Californians has not increased since President Ronald Reagan was in office, Palmer says. 

"One of the reasons the budget's larger is because of population," Palmer explains. "You have more children who are in school today than were 5-10-15 years ago. You have more individuals who are eligible for entitlement programs -- programs you have a legal entitlement to based on age or disability. Things like Medi-Cal provides insurance for 1 in 5 Californians. There are more prisoners in the state's correctional facilities. More students at UC, CSU and community colleges." 

And yet, California schools have been hit with the bulk of cuts to state spending -- roughly $11 billion since 2007-08. That's mainly because education makes up about 40% of the state General Fund spending under Prop. 98. (Read more about the funding in our previous post.) But in tough budget years, the state has suspended that guarantee to pay for other programs.

The lottery was approved by voters in 1984 to provide additional money to school. And it does, but that money is a drop in a very large bucket, state finance officials say. For 2011-12, it made up 1.5% of total K-12 funding, or roughly $931 million of the $63 billion in total K-12 funding, Palmer says.

"It does provide revenue for K-12, but it's nowhere near the bulk of the revenue," Palmer says. Also, when the economy is down, fewer people may have the disposable income to gamble, Palmer says.

Why is California in such a tough economic spot? One big reason is the recession.

According to Palmer, two main things hit California especially hard: the bursting of the housing bubble and the collapse of the stock market. Since California had many more subprime mortgages compared to other states, particularly in the Central Valley and Inland Empire, it got "hit harder and earlier" than the rest of the nation.

That impact translated into the loss of housing-market related jobs in areas such as construction, durable goods sales, among others.

The collapse of the stock market at the beginning of the recession hurt capital gains earnings of primarily higher income residents. Of last year's tax returns filed in California, about 1 percent, or 140,000, represented 40 percent of all personal income tax paid in the state that year, Palmer says.

General Fund revenue is expected to continue to rise even if Prop. 30 does not pass. But it will rise at a level far lower than it would have otherwise. Education funding has dropped by about $11 billion in the last four years. Prop. 30 "builds the base off of which future growth for K-12 spending is based," Palmer says. "...Under a scenario where Prop. 30 does not pass, you start from a lower base [and] that's a long-term issue."

Stay tuned for a follow-up post: We'll examine claim No. 4 -- Schools are a mess, so why pay more?

For your reference, the California Department of Finance produced the following chart on K-12 funding projections with and without revenues from Prop. 30:

Tami Abdollah can be reached via email and on Twitter (@latams).