Through the (“Tax Expenditure”) Looking Glass

It’s no secret that the California Teachers Association has no love for tax credit legislation. To illustrate the point, one need look no farther than AB 337, a bill authored by California Assemblymember Reginald Jones-Sawyer in 2015, that proposed a modest tax credit (to a maximum benefit of $250) for out-of-pocket expenses incurred by teachers for classroom supplies and materials.  Even after the measure was amended to limit receipt of the proposed credits to public school teachers, only, the CTA continued to oppose the bill.  As the Assembly Appropriations Committee’s analysis of AB 334 noted:

“CTA asserts schools should be adequately funded so that teachers do not have to spend personal income to purchase classroom materials. While this tax credit would be used for activities benefiting California’s public schools, the effect would be diminished by reducing Proposition 98 funding. The committee may wish to consider whether increased school funding would be a more efficient approach to achieving these goals.”

The notion that the provision of a tax credit must come at a corresponding loss of Proposition 98 funding is simply not true.  For example, in 2016, the California Legislature increased the annual cap on tax credits authorized by the state’s film tax incentive program from $100 million to $330 million, yet Proposition 98 funding for K-12 public education increased from $71.6 billion in 2016-17, to $75.5 billion in 2017-18, and $77.9 billion in 2018-19.  (By way of comparison, the credits proposed by AB 334 were estimated to carry of maximum value of $17.4 million over a three-year period, or about two-and-a-half percent of the value of the increase in film-related tax credits available over the same time period.)

Over the two year period subsequent to AB 334’s failure to win passage, Prop. 98 funding for K-12 public schools increased by $6.3 billion, yet public school teachers continued to spend money out-of-pocket to purchase classroom supplies and materials.  Both they, and their union leaders were, and remain well aware that there is no guarantee that 100-cents-on-the-dollar of any increase in Prop. 98 funding will find its way to classrooms, let alone be used to purchase supplies and materials chosen by teachers, themselves.  Why then, did the CTA oppose AB 334?

The answer is found in an essential element of Proposition 98: Any increase in Prop. 98 funding establishes a new floor for future state K-12 education spending.  If, during periods of economic downturn, the state cannot meet its Prop. 98 funding obligation, the difference is “owed,” and must be made up in subsequent budgets.  Although Proposition 98 doesn’t guarantee reliable year-to-year increases in public K-12 education funding, it does assure (barring some calamity) longer-term growth.  In the view of the CTA, every dollar allowed as a tax credit represents money that could have been used to increase the state’s guaranteed spending threshold for K-12 education.

In 2010, state lawmakers began seeking means of  curbing the introduction of tax credit legislation by proposing accompanying accountability criteria “…ensuring that only tax expenditures with a measurable benefit, as defined, are provided by the state.”  The idea was to require any newly enacted tax credit to demonstrate a “measurable benefit,” using ” a metric that can quantify the measurable social, economic, or other public benefit to the state attributable to the tax expenditure.”

The initial effort failed, but several years later new provisions were successfully written into the state’s Revenue and Taxation Code that required any tax credit legislation enacted after January 1, 2015 to include:

  • specific goals, purposes, and objectives;
  • detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives stated in the bill; and,
  • data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives.

Now, a bill introduced by Assemblymember Autumn Burke (D. – Inglewood), AB 263, seeks to extend the applicability of these accountability criteria to include any tax deduction, exclusion, and exemption enacted as of January 1, 2020.

Really?  What purpose is likely to be achieved through the establishment of such requirements?  And why don’t the same criteria apply to direct expenditures?  After all, barring charitable contributions donated to agencies of the state, every dollar appropriated by the Legislature is, in essence, a “tax expenditure.”

But wait, you say.  The state does, after all, specify goals, purposes and objectives for our public education system, and has developed detailed performance indicators and data collection requirements to enable both the Legislature and the public to determine whether our public schools are meeting, failing to meet, or exceeding such goals.  To which I say, while that is true, it is also the case that California enacts and abandons educational performance indicators and assessment instrumentation with predictable consistency.  Does anyone remember the California Learning Assessment System?  Golden State Exams?  High School Exit Exam?  How about the Academic Performance Index?  Remember how the California Department of Education modified its content standards to compete for federal “Race to the Top” funding it never received?  Or, how it came to adopt the Smarter Balanced Assessment System?  And, does anyone believe that the California School Dashboard will continue to exist in the same form five years from now, or that it will exist at all, in ten?

Such changes are an inevitable feature of the educational landscape.  And while private schools function in a significantly different political environment, they are no less immune to the vicissitudes of innovation, economy, fad and fancy. The point is not to wag a finger at our public schools.  To the contrary.  They are being (appropriately) adaptive.  But adaptation and improvement is hardly the motive underpinning legislation such as AB 263.  Curtailing the passage of new “tax expenditures” is.

One wonders how long it will be before legislators begin calling for the extension of AB 263’s provisions to include previously existing deductions and exemptions associated with houses of worship, nonprofit charities, medical research, and private education?  Why, they will ask, should some “tax expenditures” require the specification of detailed performance criteria to the exclusion of others?  That question is not far down the path that’s currently being paved.  Here’s hoping our lawmakers will proceed with caution.

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