Photo credit: 401kcalculator.org

Proponents of a 12-year extension of a temporary tax used to bolster education funding may ask voters to consider the measure prior to a full vetting, with critics demanding accountability.

By law, the state Controller’s office is supposed to audit Proposition 30’s Education Protection fund, which doles out the funds according to a strict formula. Although the law gave no time requirement, the audit has not yet happened and isn’t projected to be complete until around a month before the November election, which one critic says shows a lack of transparency.

“Voters were told that Prop. 30 funds would be audited, and there is a presumption among the voters that that audit would be conducted in a timely manner,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association. “And to be told that the audit … isn’t going to be completed until the month before the election is not exactly full transparency.”

History

Prop. 30, which passed in 2012, implemented a tax on incomes exceeding $250,000 and a quarter-cent sales tax, which were both used to stave off severe budget cuts to education and the general fund.

To quell concerns that the tax revenue would actually go to funding education and not some unrelated expense, the measure called for two levels of oversight: annual audits of spending by local agencies, like school districts, charter schools and community college districts, and a periodic audit of the state’s Education Protection Account.

The local audits are being completed, but no audit of the EPA has been performed to date, which the law says the Controller “shall” perform. To clarify, the local audits verify how schools are spending the money, while the EPA audit would verify how the state is spending the money.

When will the audit happen and is it necessary?

The controller’s office told CalWatchdog the audit would likely be completed by October. Assuming the initiative qualifies for the ballot, which it hasn’t yet, that is only a month before voters go to the polls.

Also, only the income tax provision, which expires in 2018, is part of the extension; the sales tax provision expires at the end of 2016 either way.

Proponents — primarily teacher unions and health care advocates — are asking for the extension two years early, making the timing of the audit more immediate. But they argue the audit is not necessary because two other Controller-prepared reports, both which look at the state’s finances in a general way, satisfy the requirement.

“We know how the money has been spent and the new measure has the same accountability requirements,” said Jennifer Wonnacott, spokeswoman for the measure’s committee, Californians for Protecting Public Education and Budget Stability, Sponsored by Teachers, Health Care Providers and Labor Organizations. “The law as written under Prop. 30 has been fulfilled by these two reports, so if the Controller goes above and beyond that that’s for their office to decide.”

The Controller’s office still believes an audit is required to ensure the state is adhering to the required 89/11 percent split between K-12 and community colleges, and is satisfying other funding requirements.

“While it’s reasonable to conclude that (the other reports) meets the Proposition 30 audit requirement, the State Controller’s Office still has a duty to monitor compliance and conduct whatever field audit we believe is necessary,” said John Hill, spokesman for the Controller’s office. “That’s why we plan to audit the EPA within the next six months.”

Is there even a problem?

Despite the dispute over whether another audit is required, everyone agrees that oversight of the program was warranted. After all, the extension has also included the auditing requirements. However, no one has suggested the money is being used improperly. In fact, an independent analyst suggests there’s little cause for concern.

“These rules are relatively straightforward and we don’t have any technical concerns at this point about the way the state is distributing the funds,” said Kenneth Kapphahn, an analyst with the independent Legislative Analyst’s Office.

Timing

The measure has not yet qualified for the November ballot, but it’s well-funded, making its chances good. Assuming it does qualify, voters may be forced to make a hasty decision. Coupal called on the Controller’s office to speed up the timeline, pointing to the fact that the measure passed four years ago, which gave ample time to perform the audit.

“We would urge the controller to expeditiously move on an audit and complete the audit at least three months prior to the election,” Coupal said.

A hospital association just pumped $12.5 million into an effort to extend a tax on top earners — a tax that’s provided billions of dollars in education funding since 2012.

In fact, the California Association of Hospitals and Health Systems quadrupled its investment from four years ago when Prop. 30 passed. So why do hospitals care so much about education funding?

Because there’s billions of dollars per year in health care funding at stake.

Health care funding

Since Prop. 30 passed — during an economic downturn when the state was confronted with sharp budget cuts — it has largely funded education with some money bolstering the general fund, which includes some health care programs.

But the 12-year extension vying for a spot on the November ballot — two years prior to the expiration date — would add up to $2 billion in funding per year for Medi-Cal, the state’s Medicaid program. The contributions to Medi-Cal would come once other funding requirements have been met (the Prop. 2 rainy-day fund requirement and the Prop. 98 minimum education funding requirement).

Prop. 30

Prop. 30 imposed a “temporary,” seven-year personal income tax increase on earnings of more than $250,000, and a quarter cent sales tax increase for four years.

Some of the revenue went to help balance the state budget, but most went to education funding — 89 percent to K-12 and 11 percent to community colleges.

The extension

The proposed extension allows the quarter cent sales tax to expire, but extends the income tax increase until 2030, securing funding far enough into the future “to provide long-term stability for our schools,” said Jennifer Wonnacott, spokeswoman for the “Yes” campaign.

“We still need this investment,” said Wonnacott. “This is about asking those who can afford to pay a little bit more to keep doing so for a little while longer.”

Big money

With the heavy early investment from the California Association of Hospitals and Health Systems — which only spent $2 million to help Prop. 30 pass in 2012 — this is shaping up to be one of the costliest battles this cycle.

Prop. 30 was a $135 million issue, one largely supported by the California Teachers Association ($11.4 million), Service Employees International Union ($10.7 million), Democratic State Central Committee of California ($5 million) and the American Federation of Teachers ($4.1 million).

In total, proponents spent $65.6 million to pass the measure. It has generated $13.1 billion in education funding since its passage, according to the state controller’s office.

The extension measure is again supported by the California Teachers Association and Service Employees International Union, which — along with the hospitals — forms a formidable alliance. The California Teachers Association and Service Employees International Union has already given $1.2 million on the effort.

While it won’t take a formal position unless the measure qualifies for the ballot, the Howard Jarvis Taxpayers Association will make this a top target if it does qualify — the measure has reached the 25 percent mark for required signatures as of Sunday.

Many political donors will also fight this measure. In 2012, Charles Munger Jr. contributed $35 million to the “No on 30” campaign in opposition to Prop. 30, according to Ballotpedia.

Timing

Instead of waiting until the next cycle when the Prop. 30 income tax provision expires, proponents are banking on a favorable turnout, as Democrats vote in larger percentages in presidential cycles than they do in midterms.

There had been competing Prop 30 extension proposals, but the efforts consolidated around this measure, said Wonnacott.