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THE UNIQUENESS OF BASIC AID SCHOOL DISTRICTS

Since 1920, the California State Constitution has required that the state provide a minimum state aid for public education of $120 per ADA. This minimum constitutional allocation is described as “basic aid,” and there are a few California school districts that do not receive any revenue limit income other than this constitutionally guaranteed basic aid allotment.

During California’s difficult financial times, some have historically proposed that the property tax allocation that is generated by these uniquely funded basic aid school districts be recaptured and reallocated it to other needs throughout California. This proposal to “level down” education funding in some districts to help other districts has resurfaced for 2003 and should be rejected in 2003 in the same manner as if has on numerous occasions in the past.

The purpose of this summary is to recap the issue of California’s funding allocations to basic aid school districts and comment on some of the reasons to retain the basic aid allocations.

Which are the Basic Aid School Districts?
There are traditionally 45 to 55 districts that are basic aid each year. They range in size from numerous districts with fewer than 200 students to the largest district, Newport-Mesa Unified School District, which has approximately 21,000 ADA. Newport-Mesa USD is right on the cusp of basic aid and the district fades in and out based on the interaction of two characteristics: the district’s enrollment and property values in the beach community.

In general, there are three characteristics that can lead to a school district being basic aid. First, a school district can be basic aid as a result of having a very low revenue limit calculation and, thus, it is easy for property tax income to exceed the low state revenue limit threshold. Fallbrook Elementary School District, as an example, was at one time a basic aid school district—primarily because of the property tax payment it received from San Diego Gas & Electric for the San Onofre powerplant that was in its territory. The district, however, had a very low revenue limit and was called “low wealth” while it was also basic aid.

Second, a district can be basic aid as a result of a decline in the district’s enrollment and moderate growth in district property tax income. If a district’s enrollment declines quickly, the authorized total revenue limit will also decline quickly. If, however, the district property tax values grow, the dollar amounts from property tax income can exceed the computed revenue limit. Any time a district’s property tax income exceeds the revenue limit threshold, the district is, by definition, basic aid.

Third, a district can be basic aid as a consequence of high property tax values. A district that has oil wells, as an example, often has high property values per pupil and will have high property tax yields per ADA. School districts in the oil fields of Kern County, such as Taft Union High School District, have high property wealth as a result of high assessed value and large property tax payments by large oil companies. Other examples of basic aid school districts include San Luis Coastal Unified School District which has a large powerplant in its jurisdiction, or Palo Alto USD or Hillsborough School District, that both of which have high residential property wealth within the district.

ARGUMENTS FOR THE RETENTION OF BASIC AID FUNDING
California School Districts Already Dramatically Lag Behind the National Average; School Districts Should be Leveled Up, Not Down

If the State Legislature perceives that California basic aid school districts have an advantage in their revenue levels, it is appropriate public policy to “level up” other school districts and not “level down” basic aid school districts.

To pull revenues from some of the proudest school districts in the state and redistribute those dollars among other state expenditures would destroy some of these districts and in some cases would lead to imminent fiscal insolvency. Equalization of school district revenue is appropriate—but the revenues of lower revenue districts should be increased to the national average, rather than pulling down the revenues of higher revenue districts.

Basic Aid School Districts are Really Like California Cities
The financing of basic aid school districts is much like the financing of California cities in that their increase or decline in total dollar allocations is a result of the growth or decline in property tax income. If property tax values decline, the district loses revenues; if property tax values increase, the district’s income will grow.

Like cities, counties, or other entities of local government, basic aid district income is determined by property tax revenues, not by the population served. That is, the dollar income to the district is as a result of property tax income change and not as a result of an increase or decline in student population.

The growth in the local property tax receipts for basic aid districts should not be recaptured by the state any more than they would be from cities or counties.

Recapturing Property Tax Dollars Does Not Benefit Other Educational Entities
While some California educators look enviously at the potential level of revenue of a basic aid school district, recapturing those dollars at the state level will not benefit other educational entities. Any property tax income that is received by California school districts in excess of their revenue limit is considered to be non-Proposition 98 income, and the state is not obligated to give those dollars to public education.

The state of California could, theoretically at least, recapture property tax income from basic aid school districts and allocate those dollars to other school districts. However, the additional local property tax dollars for the other districts would be offset, dollar for dollar, by a reduction in state aid. The net result is that the state—and not public education—would be the beneficiary of such a plan. In short, since the dollar amounts to basic aid school district are not part of the Proposition 98 calculation, a recapture of those amounts would not yield additional dollars to the remaining California school districts.

Property Tax Dependency Can Also Lead to Difficult Financial Times
With the recent wide swing in property values, basic aid school districts have been aware of the negative side of basic aid—a loss in income but a growth in enrollment. Consider, as an example, a district that had declining property tax income—as did Newport-Mesa Unified School District in 1992-93—but yet had growth in its ADA. The district was forced into the position of providing more services for fewer dollars. Unlike state-aided districts, dollars in basic aid districts do not grow proportionally to population.

These swings in property tax values are especially evident in those districts that are supported by the price of oil. With a wide fluctuation in oil values and the resulting change in property tax values, oil-or energy-dependent districts can have fast declines in income and still have to meet obligations for growing ADA. These districts, due to the decline in property wealth, face even more difficult problems in trying to balance their obligations for educational delivery.

A decline in property can impose a precipitous and very difficult budget squeeze on basic aid school districts.

Property Tax Income Paid by the Local Taxpayer Should be Allocated Locally
In general, the state has respected the right of local agencies to be able to use the local property tax as a primary funding base for their own local programs. The sales tax, personal income tax, and corporation tax have been the primary funding sources for the state and the property tax has been retained by local agencies for their purposes.

If, however, the state chose to recapture local property tax income from these 40-plus school districts, the added dollars would be used to meet state expenditures rather than local obligations. Property tax income paid by the local taxpayer should remain as a funding source for local agencies—and not funding for the state of California.

Basic Aid School Districts Do Not Necessarily Have High-Income Residents
Although basic aid school districts have often been called “high wealth,” the description is not of the residents but of the property value behind each pupil.

Beverly Hills Unified School District has, as an example, one of the highest incomes for its residents, but it is not basic aid. On the other hand, Taft High School District, which has one of the lowest personal income levels in the state, is a basic aid district. Property tax values determine whether or not a school district is basic aid and not the income of its residents.

Basic Aid Board Members Can Roll Back Tax Rates So that Dollars Cannot be Recaptured
Under current law, school districts determine the amount of property taxes collected per $100 of assessed valuation rather than the tax rate being determined by the state. Basic aid school district board members have the authority to reduce the tax rate down to a level equal to their own revenue limit computation rather than collecting income in excess of the state’s computed revenue limit.

Thus, if the state chose to recapture basic aid school districts’ income, those local boards have the authority to reduce the tax rate that is imposed upon their property taxpayers. The tax rate reduction would give tax relief to local taxpayers and not to the state of California. Unless the state wants to be in the position of mandating that school districts impose a local property tax rate, it is expected that local trustees will give property tax rate relief rather than subsidize the state.

Summary

California basic aid school districts believe that they should continue to receive that which is guaranteed by the State Constitution: $120 per ADA. These districts do not seek any added or special benefits from the state of California other than to continue to be able to use local income for local purposes. Local property taxpayers should be able to keep their local dollars in their own community and their tax payments should not be redirected to noneducational services that are provided by the state of California.

Distributed by Schools For Sound Finance (SF)
Prepared by School Services of California, Inc., 1121 L Street, Suite 1060, Sacramento, CA 95814

From the Superintendent’s Office:

Letter to Parents & Community (29-Jan-2003)
Memo: State Budget Update (30-Jan-2003)
>> The Uniqueness of Basic Aid School Districts
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KEY CONTACTS IN SACRAMENTO
These are the telephone numbers, e-mail and mailing addresses of our three key elected officials:

Governor Gray Davis
State Capitol Bldg.
Sacramento, CA 95814
Ph: 916-445-2841
Fax: 916-445-4633
email: governor@governor.ca.gov

Senator John Burton
State Capitol Bldg., Room 205
Sacramento, CA 95814
Ph: 916-445-1412
Fax: 916-445-4722
Local fax: 415-479-1146 (best contact)
website: http://democrats.sen.ca.gov/senator/burton/

Assemblyman Joe Nation
State Capitol, Room 3013
Sacramento, CA 95814
Ph: 916-319-2006
Fax: 916-319-2106
email: joe.nation@asm.ca.gov