Personal Income Tax
Proposition 38 would increase the personal income tax rate on the entire population with the exception of the lowest income residents. The increase would be effective over a 12 year period from 2013 through 2024. The increase would apply in differant ways to different income brackets in the California income tax table. Each higher tax bracket would have a higher additional marginal tax rate imposed on them. 60 percent of personal income tax returns would have higher tax liabilities owed to the state. In addition, an extra 1 percent tax applies to annual income over $1 million (with the associated revenue dedicated to mental health services).
The increase in income tax rates would result in an estimated $10 billion in additional revenues in the first few years after the measure passes. The California Legislative Analyst estimates that the total revenues generated would tend to grow over time. They also claim that there will likely be little stability in revenues generated in a particular year as revenues based on the tax rates for upper-income earners could wildly fluctuate year to year. This is because upper-income earners incomes are tied more directly to the changes in the stock market and other investments, which change during a year depending on the market. Because of this, overall revenues raised by the measure are difficult to predict.
Proposition 38 would bar the Legislature from making any changes to the measure. Only future ballot propositions could possibly amend the measure.
California Education Trust Fund
The revenues raised by Proposition 38 would be deposited into a the California Education Trust Fund (CETF). The funds would be allocated for three separate purposes.
- 60 percent of the CETF funds would go to California public schools.
- 10 percent of funds would go to Early Care and Education programs.
- 30 percent would go to help with the state's debt payments.
Proposition 38 limits the growth in allocations to schools and early childhood care programs beginning in 2015-16. This would allow a higher portion of CETF funds be free for day payments. Specifically, Prop. 38 limits growth to schools and early childhood care programs based on the average growth of per capita state income since 2010-11 and any funds collected above the growth rate would be used for state debt payments. From 2017-2024,85% of CETF funds would go to schools and 15 percent would go to early childhood education programs.
Education Funding
The CETF revenues allocated for education would be added to school funds guaranteed by California's Proposition 98 education mandate (see Proposition 98: a Primer from the California Legislative Analysts Office, Feb. 2005). These combined funds would allocated to three separate grant programs.
Educational Program Grants - 70 percent of CETF school funding would be distributed through this fund based on the population of each school with the per-student grant dependent on student grades. The funds could be used for a variety of school activities including hiring additional support staff, funding instruction, and parent-teacher programs.
Low Income Summer Student Grants - 18 percent of CETF school funding would be distributed through this fund at a single statewide rate based on the number of low-income students in each school. These funds could be used for a variety of school activities.
Training, Technology, and Teaching Materials Grants - 12 percent of CETF school funding would be distributed through this fund at a single statewide rate based on the student population of each school. The funds could be used specifically for the purchase of new technology and teaching materials, and training school staff in their operation.
Proposition 38 would also require school districts to gather public input prior to making spending decisions through open public hearings. The governing board must explain how CETF funds shall be spent in public with an explanation of how the expenditures will benefit the schools in question.
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Proposition 38 requires school districts to create and publish an online budget for each of their schools detailing all education funding broken down by spending categories. The budgets must be made available to the public, including data from earlier years. Schools would be required to provide a publically-made report on how CETF funds were spent at each school within 60 days after the end of the school year.
Auditing, reporting, and budget requirements of Proposition 38 could use up to 1 percent of the school district's allocation under the measure. No CETF funds would permitted to be used for salary and benefit upgrades unless the updgrades are used for employees that are funded using non-CETF funds. CETF funds could not be used to replace state, local, or federal funding.
Early Care and Education
Under Proposition 38, early care and education programs will receive 10 percent of the revenues raised through 2016-17 and 15 percent after that. The funds are allocated for specific uses as detailed below:
- 51.6% of funding would be used to expand state subsidized pre-school for low-income families. Neighborhoods categorized as low-income would receive priority status.
- 19.4% of funding would be used to restore budget reductions to existing early care and education programs already subsidized by the state. The programs were reduced in 2008-09 and Prop. 38 would increase per child payment rates and family earnings levels which determine how much determine eligibility for benefits.
- 16.6% of funding would be used to create a new California Early Head Start program which would provide childcare and education to children from low-income families.
- 8.9% of funding would be used for payments to state subsidized early care and education programs. The payments would be made per-child and would be used primarily for preschool programs.
- 2.6% of funding would be used to create a system to review and rate early childhood education programs on how they contribute to academic, emotional, and social development. The ratings would be made public.
- 0.6% of funding would be used to create a database which would compile data on children who use state funded early childhood care and education programs. The data would include performance indicators on readiness for Kindergarten. The data would be available through the Ed-Source K-12 database.
- 0.3% would be used to fund increased safety and health inspections of state funded early childhood care and education programs.
State Debt Payments
Starting in 2012-13 and going through 2016-17, Proposition 38 would provide 30 percent of revenues to pay for debt relief for the state. The funds would first be used to pay education debt costs for school facilities with any remaining funds going to general state bond debt. In 2015-16, Prop. 38 would limit CETF allocations to schools while early care and education programs would be barred from increasing at a rate greater than the average per capital personal income tax in the state since 2010. Any CETF revenues collected beyond the growth rate would be used for general state debt payments.
What Happens if Voters Approve Both Proposition 30 and Proposition 38?
If provisions of two measures approved on the same statewide ballot conflict, the Constitution specifies that the provisions of the measure receiving more “yes” votes prevail. Proposition 30 and Proposition 38 on this statewide ballot both increase personal income tax (PIT) rates and, as such, could be viewed as conflicting. Proposition 30 and Proposition 38 both contain sections intended to clarify which provisions are to become effective if both measures pass:
• If Proposition 30 Receives More Yes Votes. Proposition 30 contains a section indicating that its provisions would prevail in their entirety and none of the provisions of any other measure increasing PIT rates—in this case Proposition 38—would go into effect.
• If Proposition 38 Receives More Yes Votes. Proposition 38 contains a section indicating that its provisions would prevail and the tax rate provisions of any other measure affecting sales or PIT rates—in this case Proposition 30—would not go into effect. Under this scenario, the spending reductions known as the “trigger cuts” would take effect as a result of Proposition 30’s tax increases not going into effect.
- California. California General Election Official Voter Information Guide. Sacramento: California Secretary of State Elections Division, 2012. Online.
