News

Brown, lawmakers cut deal on Prop. 39 funds

For a while, at least, it appeared that state government was pitching a perfect game.

 

Proposition 39, a ballot initiative to change corporate state income tax policy by closing a $1 billion loophole approved years before during the Schwarzenegger administration, won 61 percent of the vote, despite the dim odds confronting any measure that seeks to increase taxes. The proposition cleared yet another difficult hurdle when the Legislature and Gov. Brown quickly agreed on the direction for this new source of revenue: public schools.

 

But with the budget deadline moving closer, the agreement over Proposition 39 appeared in jeopardy as it became part of the larger budget debate, buffeted by conflicting proposals that were offered to divide up the funds.

 

Finally, late Sunday evening, Sen. Kevin de León, the chair of the Senate Appropriations Committee, said lawmakers and Brown reached a deal on the money generated by Proposition 39.

 

On its face, the requirements of Proposition 39 were clear: About half the money from Proposition 39 was supposed to be deposited in the Clean Air Job Creation Fund to help boost clean-energy jobs and a “green” economy, or about $500 million annually over the next five years. The other half of the $1 billion total was destined for public education, and it was this piece that prompted the fiercest debate in the Capitol.

 

But the administration and others said there was some flexibility about which state agencies would receive funds generated by the initiative in order to meet the end goal of achieving energy efficiency and job creation.

 

The Legislature and the governor agreed earlier that the first year’s estimated $450 million would go towards the Department of Education for the purposes of increasing energy efficiency in K-12 and community college districts. It was agreed that schools could later re-invest the energy savings realized through these programs, making the program beneficial to both the environment and educational funding.

 

“We applaud the governor for targeting schools for these funds,” said de Léon and Tom Steyer, the co-chairs of the Proposition 39 campaign, said in a joint statement. “Our belief is that the funding formula needs to focus on the accountability and transparency necessary to meet the spirit and intent of Proposition 39.”

 

In the end, the governor and lawmakers agreed on distributing roughly $464 million to education the first year, and about $550 million annually after that. The money goes to K-12 schools, community colleges, charter schools, county offices of education, but not to four-year colleges or universities. They also agreed on the governor’s goal of keeping the distribution of fund

 

Brown’s original proposal would have distributed the revenues generally on a per-student basis. The smallest schools would have received $15,000 grants, while larger ones would have received either $50,000 or $50,000 plus an additional amount based on the number of students, said Finance Department spokesman H.D. Palmer. Palmer’s department, the most powerful in state government, writes the governor’s budgets.

 

But de León and other legislators argued that the original plan failed to provide the returns that voters expected on this $2.5 billion investment and therefore was not accountable to the electorate that approved it. The Legislature instead proposed a competitive grant process that would impose requirements, rather than the guidelines established by the governor, in order for schools to receive the money.

 

“If we don’t require competitive bids, and if we don’t require benchmark and measurement verification, then we will be thwarting the voters’ will. There will not be energy savings, there will not be jobs created,” said Greg Hayes, a spokesman for De León. “The voters did not vote on deficit reduction. They voted on clean energy, creating energy, and creating jobs.”

 

In approving the ballot measure, the voters approved a Citizens Oversight Board to monitor the funds. This provision was the driving force behind the more specific conditions the Legislature argued should be met before the money was distributed.

 

Palmer said that placing rigid requirements on the schools’ access to the money could create bureaucratic impediments that may slow the process of implementing the programs.

 

But legislators still insisted that Brown’s proposal would neglect crucial factors such as a school’s climate zone, age, and need. De León said during a conference committee hearing that any proposal for the funding must be “targeted,” “specific,” and “strategic.”

 

“If you’re in Palo Alto or Beverly Hills, you get the exact same money as somebody in East Palo Alto or east Los Angeles, for example. And if you have a brand new school, you get the same amount of money as a 100-year-old school,” Hayes said.

 

At the hearing, Michael Cohen from the Department of Finance responded that the legislature’s distribution might leave some schools with no Proposition 39 revenues at all.

 

“When you have 10,000 schools and 1,000 school districts, the reality is not everyone is going to benefit,” de León responded. “We have to deal with that.”

 

Yet the compromise that was reached will give every district access to the funds and will do so without the competitive grant process.

 

According to Hayes, each district will be given a poverty-weighted allotment that is based on Average Daily Attendance (ADA), integrating both the governor and legislature’s means of determining which districts received what amount of revenues. Furthermore, though the competitive bid process was scrapped, legislative concerns about accountability were addressed through an application process that would prevent schools from receiving money for “phantom projects,” Hayes said. The agreement additionally requires benchmarks and outcome verification, according to a statement from de León.

 

“We cannot blow this opportunity. It’s $2.5 billion dollars the voters voted for,” de León said during the conference committee hearing of the unique opportunity presented by Proposition 39. It seems no one ever told him not to mention a no-hitter while it’s in progress.

 

Want to see more stories like this? Sign up for The Roundup, the free daily newsletter about California politics from the editors of Capitol Weekly. Stay up to date on the news you need to know.

Sign up below, then look for a confirmation email in your inbox.

 

Support for Capitol Weekly is Provided by: