California School Boards Association (CSBA) files suit to recover nearly $1 billion in school funding lost due to misinterpretation of California law by State Controller’s Office
SACRAMENTO, Calif. (July 21, 2021) – In an effort to ensure that California’s schools receive the funding due to them under law, CSBA has filed a Writ of Mandate and Complaint for Declaratory and Injunctive Relief against State Controller Betty Yee. The suit aims to capture nearly $1 billion in Proposition 98 funding that was lost due to improper calculation of property taxes owed to school districts from five Bay Area counties.
The filing pertains to the Educational Revenue Augmentation Fund (ERAF) and calculation of Proposition 98 (the primary funding source for most California schools) beginning with the 2019–20 budget year. ERAF was created by the Legislature in 1992 to relieve pressure on the General Fund while meeting the constitutional minimum funding guarantee for K-14 education. The ERAF statute redirects a portion of property taxes statewide from cities, counties and special districts to local school districts and community college districts, reducing the demands on the state’s General Fund.
Five counties in California generate “excess ERAF” because the property tax calculations done in each of those counties results in more revenues being deposited into ERAF than schools would otherwise receive. Any excess ERAF is first allocated to fund some special education programs in the county and the rest is shifted by the County Auditor back to the county, cities and special districts.
According to a March 2020 report by the Legislative Analyst’s Office, sometime before the 2019–20 fiscal year, the counties of Marin, Napa, Santa Clara, San Mateo and the City and County of San Francisco began excluding charter school average daily attendance in their ERAF calculations. This decision generated additional excess ERAF and reduced the amount of property taxes allocated to school districts and community college districts in those counties, with the funds redirected back to counties, cities and special districts. Because of the counties’ calculations, for 2019–20, schools will receive approximately $283 million less than they should have; for 2020–21, they will receive $298 million less; and for 2021–22, they will receive $315.9 million less. This is an ongoing loss in future years as well if not corrected.
“Our public education system is facing both the greatest challenge and the greatest opportunity of our lifetimes, and we must ensure that schools receive every dollar they are due in order to support learning recovery and reshape schools in ways that benefit all students for years to come,” said CSBA President Dr. Susan Heredia. “The Legislature created ERAF to meet its constitutional funding obligations to public schools and we cannot accept an end-around that sets the precedent of shortchanging students.”
In response to the LAO report, the Legislature reached a compromise with the five counties during the 2020–21 budget process. In return for holding the counties harmless for their miscalculation of ERAF in prior years, Senate Bill 98 required the State Controller to issue a guidance regarding the calculation of ERAF and provided that the State Controller could take legal action against the counties if they did not follow the guidance. The 2020-21 state budget was adopted assuming the issue would be corrected and the state originally calculated a higher Proposition 98 guarantee.
Contrary to this compromise, the State Controller’s guidance, issued on Feb. 16, 2021, erroneously directed counties to continue excluding charter school ADA from the ERAF calculation. The State Controller’s rationale for the guidance was that the applicable Revenue and Taxation Codes relating to ERAF refer only to school districts and not to charter schools. However, charter school ADA is not excluded from Proposition 98 or property tax revenue for any other purpose. Unlike school districts that receive property taxes directly, a charter school’s share of property taxes is first received by the school district and then “passed through” to the charter school in amounts usually proportionate to its share of students in the district. Further, had the Legislature intended the State Controller to issue guidance favorable to the counties, it is unlikely it would have given the counties a “hold harmless” guarantee for previous calculations or provided the State Controller to take legal action if the counties did not follow the guidance.
The guidance issued by the State Controller was clearly contrary to the Legislature’s intent and in conflict with the Department of Finance’s three-year budget projections, which had included the property taxes generated by the ADA from all schools — including charter schools — in the five counties.
CSBA is asking the court to:
- Issue what is called a “declaratory judgment” finding that:
- The State Controller must issue guidance to county auditors requiring that they include charter school ADA in their ERAF and excess ERAF calculations; and
- The State Controller’s Feb. 16, 2021, guidance is unlawful and violates the California Constitution’s minimum funding guarantee.
- Issue a permanent injunction enjoining the State Controller from enforcing the Feb. 26, 2021, guidance from the 2019–20 fiscal year and forward.
- Issue a Writ of Mandate requiring the State Controller to issue a revised guidance that requires county auditors to include charter school ADA in their ERAF and excess ERAF calculations and order counties to comply with the revised guidance.
CSBA is a nonprofit association representing nearly 1,000 PreK-12 school districts
and county offices of education throughout California.