California Schools Win as Taxes $4.5 Billion Over Budget

Photographer: Renee C. Byer/Sacramento Bee/MCT via Getty Images

California Governor Jerry Brown’s budget office warned that it is still possible that much of the additional revenue in January was an idiosyncrasy from early tax payments. Close

California Governor Jerry Brown’s budget office warned that it is still possible that... Read More

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Photographer: Renee C. Byer/Sacramento Bee/MCT via Getty Images

California Governor Jerry Brown’s budget office warned that it is still possible that much of the additional revenue in January was an idiosyncrasy from early tax payments.

California’s 6 million public schoolchildren stand to be big winners as a surge in personal- income tax revenue has put the state about $4.5 billion ahead of Governor Jerry Brown’s forecast.

The figure is an estimate of collections for the fiscal year that began July 1 through the end of this month, from the nonpartisan Legislative Analyst’s Office. Since 1988, the state constitution has required that schools get a minimum percentage of the state budget -- currently about half.

The extra money comes after California, with almost 13 percent of U.S. public-school students, saw its revenue plummet 20 percent in 2009, the end of the longest recession since the 1930s. The number of full-time teachers fell by 32,000 between 2007 and 2012, according to the analyst’s office.

“Having the opportunity for some additional funds will allow us to really make inroads in programs for students that we haven’t had the luxury to think about in a long time,” said Steven Ladd, superintendent of the Elk Grove Unified School District near Sacramento, California’s fifth largest. “Every educator in the state has a tremendous list of needs and pent up demand.”

Brown persuaded voters in November to impose the highest statewide sales tax in the U.S., at 7.5 percent, and to boost levies on annual income starting at $250,000 -- reaching 13.3 percent on those making $1 million or more, the nation’s highest rate. Those increases were calculated into the governor’s forecast.

January Surge

Income-tax revenue for the most populous U.S. state surged $5 billion above estimates in January. At the time, the analyst’s office said the increase might have come from high- income earners who cashed out investments at year’s end, before federal tax rates increased, and might be followed by a corresponding drop in April or May.

But after subtracting refunds to taxpayers, almost $12.7 billion was collected through April 26, four days before the end of the month, the analyst’s office said. Brown, a 75-year-old Democrat, had projected $13.3 billion in April.

Brown’s budget office warned that it is still possible that much of the additional revenue in January was an idiosyncrasy from early tax payments.

“We don’t yet know how much of this is associated with high-income individuals accelerating income into 2012 because of uncertainty over federal tax policy at the end of last year,” said H.D. Palmer, Brown’s budget spokesman. “While it is certainly a welcome development, we are urging people to exercise an abundance of caution on how this revenue can be used.”

Brown’s budget office also isn’t sure yet if some of the surge in January came from residents who paid some of their higher state taxes early.

Brown Interpretation

Exactly how much will go to schools isn’t known and can depend on how Brown chooses to interpret the formula approved by voters. In about two weeks, the governor will release an update to his budget proposal for the fiscal year beginning July 1, when he will detail how the extra money should be spent.

Under the formula used by Brown and the Legislature for the current budget, almost all of the windfall should go to schools, said Edgar Cabral, a school-finance authority with the analyst’s office.

“For every billion that comes in, roughly $950 million will go to” schools, he said. Yet California law “only tells the state how much to provide. It doesn’t tell the state what to do with the money or how it should be allocated.”

In January, Brown proposed a budget that he said would leave the state with an $850 million surplus by the end of the next fiscal year, in June 2014. That plan increased school funding by $2.7 billion more than this year.

He also has proposed the broadest overhaul of how the state doles out money for schools in 25 years, seeking to send more to districts where the majority of students are poor and learning English as a second language.

Opposition

His plan has met with opposition from fellow Democrats, who say it would harm poor children struggling in districts where the majority aren’t low-income or learning to speak English.

“Considering the fact that K-12 education took significant hits during the recession, bringing additional revenue back on line and using them in the manner the governor has proposed is a good thing,” Palmer said.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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