How We Got Here
In 2004 the State realized it could borrow money at a lower interest rate if it pledged a reliable source, sales tax, to pay back its debt. But how to get cities and counties to agree to sharing their sales tax? An even more reliable source -- the schools' share of local property taxes -- was a likely candidate. (After all, the State General Fund backfilled most local schools' finances.) The State dutifully went to voters to approve this with Prop 57 (March 2004). But that action opened the door. Cities and counties, unhappy with the State's inability to backfill losses when the Vehicle License Fee was cut, inserted a Vehicle License Fee swap with the original Economic Recovery Bond flip in August 2004. Without voter approval.
Today these mechanisms represent over $7 billion dollars a year of local property taxes that have been directed away from our community schools. Our local tax dollars apportioned directly to K-14 educational institutions no longer represent a stable, reliable cash flow for local schools.
While the California Constitution states that the first priority for State revenues is public education, this process has bumped the vast majority of public schools to fourth place when it comes to receiving local property tax dollars allocated to education.
First call on local educational tax dollars is a refund to cities, counties and Special Districts. They get any money in the Educational Revenue Augmentation Fund that wouldn't be spent on K-14 education or Special Ed, if K-14 were fully funded locally.
Second call on local educational tax dollars is funding the repayment of the 2004 series of Economic Recovery Bonds.
Third call on local educational tax dollars is funding the State's obligation for Vehicle License Fee reduction (from 2% to .65%) .
And, if there is any money left, it goes to the schools.
The only exception is the handful of districts around the state whose primary property tax allocation is greater than the state's per-pupil limit. They get to keep those revenues, though almost all the Educational Revenue Augmentation funds collected from their taxpayers go through the process above, without coming back to these school districts at all.
From all state revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education.
— California Constitution - Article XVI Section 8