‘ObamaTAX’ May Force School Boards to Cut Nonessentials

July 2, 2012

By Wayne Lusvardi

Local school boards in California are going through their annual Kabuki dance ritual claiming there will be teacher layoffs unless Gov. Jerry Brown’s or Molly Munger’s state tax hike propositions are passed by the voters.

But it might be Obamacare, now redefined as “ObamaTAX” by the U.S. Supreme Court, that may compel middle class voters to nix any state tax increase initiatives on the ballot in November.  Shifting tax increases onto wealthy households under Brown’s tax proposal will only result in a downturn in the economy that, in turn, will show up in a self-defeating decline in tax revenues. And shifting a state tax increase on nearly everyone else under Munger’s initiative will stand even less chance of voter approval with the ObamaTAX about to kick in around 2014.

A 10 Percent Tax Hike for a 2 Percent Population-Inflation Increase?

In Pasadena, the school district’s chief financial officer, John Pappalardo, states, “Pasadena schools will be pressed to find $8.2 million in additional savings if voters reject tax proposals by Gov. Brown and Pasadena attorney Molly Munger.”  But this omits the fact that Brown’s tax proposal would raise the state budget revenue by 5 percent and Munger’s by 10 percent, when population and inflation combined are only projected at 2 percent at best.

Demographer Dowell Myers of the University of Southern California has forecast only a one percent statewide population increase for 2013. This assumes there will be no flight of businesses and residents out of the state due to the roll out of higher green power rates and Cap and Trade pollution taxes on all large industries and utilities starting in 2013.

And the U.S. Federal Reserve has forecast that monetary inflation will run from 1.2 to 2.0 percent in 2013. Since public schools are tax-exempt, the 1 percent inflation forecast is probably more appropriate.

This means that voters will be asked to approve new income and sales taxes that are 3 percent to 8 percent higher than population and inflation increases combined.  Gov. Brown’s tax hike would shift this on sales tax payers and on wealthy households making $250,000 or more.  Munger’s tax proposal would tax everyone — except the poor making $14,300 or less per year.  So Munger’s tax proposal would hit the working and middle class, as well as those in upper income levels.

What these tax increases would partly pay for would not be retaining core teachers but school support staff.

Non-Essential Positions Only At Issue

Proposition 98 already guarantees public schools 43 percent of the state budget. The Pasadena School District got along with a state budget of $87 billion in 2012 without cutting core teachers and arguably can do so again without core teacher layoffs.

What really is at issue of being cut in the budget are non-essential personnel such as teachers’ aides, pre-school teachers, bus drivers, art teachers, librarians, dentists, and Indian education center personnel.  Non-essential personnel are called “categorical personnel” under the state budget.

Crying Wolf

Pasadena School Board President Renatta Cooper, herself a former pre-school teacher, claims: “The budget means larger classes, means fewer support services, and it reflects a continual erosion of [state] support for public education.  I don’t know where it ends.” she said.  Neither did Cooper mention that in 2010 Pasadena voters rejected a school parcel tax despite school district claims of core teacher layoffs that never resulted.

Cooper also doesn’t disclose that it won’t be core teachers that would be cut.  It would be non-essential personnel.  And it is not clear whether proposals such as lessening the school year by 5 days and cutting the number of hours of special education teachers’ aids could absorb the cuts.  The Pasadena District claims it would need to cut $7.3 million out of its $257 million total budget in 2011, or about 2.8 percent of its total budget.

In 2009, State Assembly Bill ABX-4-2 slightly cut funds for non-essential “categorical” personnel.  It also shifted responsibility for deciding what gets cut to the local school board level.  This greater flexibility saved public schools from having to cut art or music teachers or librarians if they could find cuts elsewhere.

PUSD Board Chairwoman Renatta Cooper needs to stop looking for more state funding to avoid having to make those hard decisions now delegated to local school boards.

ObamaTAX will be on Minds of Voters

With Obamacare, now ObamaTAX, costing $6,000 per person per year in 2014, there will be less money for non-essentials, including non-essential positions in public schools.

Imposing a state tax hike on the wealthy avoids the problem that taxes are fungible.  They shrink the private economy beyond merely high-income earners. They take jobs away from the private sector and transfer those jobs to non-essential school personnel.  Certainly, public education is a high priority in society. But is a teacher’s aide, school librarian, or pre-school teacher more important than a job trainer, venture fund manager, or innovation engineer as described in Edward Conard’s new book “Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong?”

And who is to guarantee that such tax increases won’t go to pensions or health plans for retirees that have not been reformed?  Are we really worried about loss of health care benefits to teacher’s aides or pre-school teachers when ObamaTax will cover it?

There are seven new taxes on people earning less than $250,000 under ObamaTAX. With this looming over their heads, why would the middle class vote for a mostly unneeded and excessive increase in the state income tax and sales tax?  Once again, even if this tax is shifted to only the wealthy, that just takes jobs out of the private sector with no compensating rise in home values or property tax base.

Home and neighborhood values are no longer automatically benefited by proximity to public schools due to their decline in academic performance and uncoupling from neighborhood control.  There will be no likely discernible loss to property values or the tax base if Gov. Brown’s or Molly Munger’s tax proposals fail at the ballot box. And with ObamaTAX we are likely to get long-term economic stagnation, as young adults no longer will have disposable income for home down payments or small business loans. Fully funding non-essential personnel in the public school system is probably not on the mental radar screen of most of California’s middle class with ObamaTAX looming ahead. Shifting a mostly unneeded tax hike on the wealthy is also unlikely to fly with voters because there is little social dividend.

In political Kabuki dancing the dancer always dances with a mask on.  One should be aware that in political posturing over taxes in California that tax proponents also wear masks that the taxpayers need to look behind them.