Munger’s Tax Increase Doesn’t Add Up

MARCH 14, 2012

By WAYNE LUSVARDI

Molly Munger’s proposed $10 billion school tax for the Nov. 2012 ballot had to be designed by a billionaire.  It’s hard to know whether Munger designed the ballot initiative for the “Make a Wish Foundation” or for the California state government.

Munger is the daughter of Pasadena billionaire Charles Munger, who co-founded the investment firm of Hathaway-Berkshire with Warren Buffett.

Munger’s tax proposal would increase the entire existing $39.2 billion K-12 state education budget by a whopping 25.5 percent in a protracted economic recession.

It would raise income taxes as a proportion of the current state budget by an incredible 16.8 percent, possibly driving the wealthy out of the state.  And it would raise income taxes an astounding 7 percent per year for public schools after the economy recovered.

Additionally, the increase would fully plug the $4.5 billion annual gap in the California State Teacher Retirement System without any pension reform.  It still would increase K-12 school funding by $5.5 billion per year beyond that.

The tax increase would be untouchable except by voter alteration.  The state’s existing school funding for K-12 public schools could not be reduced to offset for this additional source of funding.  The Munger tax would be in addition to existing public school funding.

During the first four years of Munger’s tax initiative, 30 percent of the funds would go toward paying down the past state budget debt. Thereafter, 85 percent of the funding would go to K-12 public schools and 15 percent would go to child care programs. Munger is a member of the First Five Commission for child-care funding.

Would voters pass it without any accompanying pension reforms? That’s perhaps a bigger question than whether it would split the vote three ways on competing tax initiatives by the governor and unions.  According to a Public Policy Institute of California poll, a majority of voters say they want. The California State Teacher’s Retirement System is only 54 percent funded.  CalSTRS needs an additional $4.5 billion each year to be fully funded.  So even this initiative passed, only somewhat over half of Munger’s tax proposal would actually go to into funding schools during the first four years.

And if history is any indicator of future behavior, any new school revenues would just go into backfilling ancillary school personnel — called “categorical” employees, such as art teachers, janitors, administrators, bus drivers, etc. — rather than to core classroom teachers.

In those wealthy school districts that already passed school parcel taxes to make up for budget reductions, Munger’s tax could provide a double windfall. That is because local school parcel taxes are always in addition to state school revenues.

Munger Needs to Get Educated About School Finance 

Molly Munger is a graduate of Harvard Law School and a former federal prosecutor.  But she doesn’t seem to even have a sound knowledge of the finances of her local school district in Pasadena, where she pushed for a school parcel tax in 2010 called Measure CC.  Voters rejected it.

Munger, other donors and the Pasadena school district put about $1 million into the effort to pass the tax, purportedly to prevent teacher layoffs.  The Munger family donated $50,000.  The election cost the school district $500,000 in administration costs.

But no core classroom teachers were ever laid off even though voters rejected the tax.   And the $1 million spent on the election campaign could have been put toward helping fund classroom needs.

The Pasadena Star News reports that only 20 employees left the Pasadena Unified School District since 2010, and that was due to attrition (retirements and departures).  If Pasadena’s school parcel tax had passed, the school district would have reaped a $35 million windfall over 5 years while taxpayers were suffering through a deep economic recession.  The school district alleged it had an unmanageable $23 million budget shortfall.

Munger’s new state school tax ballot initiative is about as illogical as her support for an unneeded local school parcel tax in her hometown in 2010.

Urban Myths About School Finance 

Part of the problem with school tax proposals is school districts seem to always “cry wolf” about teacher lay-offs.  Such layoffs most often never seem to materialize even if the school tax proposals fail. It is difficult for taxpayers to tell if a school tax proposal is based on hysteria or facts.

The Pasadena Star News reports that the money from Munger’s state school tax “can’t be spent on salary and benefits.”  But there is no such provision in the wording of the initiative.  Since salaries and benefits are the largest share of the state public schools budget, such a provision would not make sense.