Editor’s Note – myBurbank will be publishing our voting recommendation of the School District’s Measure I ballot initiative to raise parcel taxes later this week. Hopefully this breakdown will give voters much needed information in this fact presented presentation by Greg Simay.
In the upcoming March 3 election, voters will decide whether to approve the BURBANK UNIFIED SCHOOL DISTRICT QUALITY TEACHER, STAFF AND SCHOOLS MEASURE, or as it will appear on the ballot, MEASURE I. Voters can begin deciding Measure I as early as next week, when absentee ballots become available.
What Measure I Proposes
Voters are being asked to approve a new tax that, for the next 12 years, would bring about $9.0 million of additional revenues per year to the Burbank Unified School District. Specifically, Measure I would:
- Levy an annual, qualified special tax (the Education Parcel Tax) of 10 cents per square foot of improvements on each parcel of taxable real property in Burbank.
- The EPT would appear as one of the items in the Property Tax bill. Check with your tax accountant or software, but the EPT is most likely not tax deductible.
- This EPT would begin July 1, 2020 and sunset after 12 years, on June 30, 2032.
- Parcels that are owned and occupied by at least one senior citizen are exempt from the EPT, but the District would require some paperwork.
- Parcels that are owned and occupied by at least one disabled person receiving supplemental security income, or social security disability insurance benefits, are exempt from the EPT. However, yearly income can’t exceed 250% of the 2012 federal poverty guidelines from Health and Human Services. Needless to say, the District would require some paperwork.
To pass, Measure I needs a two-thirds majority of the votes cast. The two-thirds requirement comes from Proposition 13, which required strong majority approval for any local measure based on taxable real property.
Back in November 2018, an earlier version of Measure I (Measusre QS) had garnered about 58% of the vote, falling short of the required 2/3 (67%) majority. Measure I contains a sunset provision, the lack of which had deterred some voters for supporting the earlier Measure QS.
Measure I pledges the District to use EPT revenues to maintain, and in some cases improve, the quality of education in its public schools. Specifically, the authorized uses of EPT revenues would be to:
- Attract and retain quality teachers and staff. Estimated annual cost: $3.8 million to 4.2 million, representing about 42% to 47% of EPT revenues.
- Maintain low class sizes. Estimated annual cost: $0.2 million to $0.6 million, representing about 2% to 7% of EPT revenues.
- Maintain and expand career and college courses, art, music, science, and innovative programs. Estimated annual cost: $3.4 million to $0.6 million, representing about 38% to 43% of EPT revenues.
- Maintain and increase safety and wellness support. Estimated annual cost: $0.8 million to $1.2 million, representing about 9% to 13% of EPT revenues.
To accomplish these aims, most of the $9.0 million in EPT revenues would go toward increasing teachers’ salaries and adding teaching staff. (About 80% of the District’s operating and maintenance expenses are labor related.)
Except for elementary school P.E., none of the funds would go for physical education and sports. Parent booster groups would continue to shoulder the lion’s share of the funding for uniforms and transportation.
Measure I has requirements for transparency and accountability to the public. Under Measure I the Board would have to:
- Conduct annual, independent performance audits to assure that EPT proceeds are spent only for purposes that Measure I authorized.
- Appoint an Independent Citizens’ Oversight Committee to further ensure that EPT proceeds are spent only as Measure I authorized.
- Deposit EPT proceeds in a special account and conduct an annual independent financial audit.
- Receive an annual written report that shows the amount of EPT funds collected and expended, as well as the status of projects funded by the parcel tax.
In November 2018, voters had approved an increase in the local sales tax rate to generate additional revenues for the City, in part because of similar oversight provisions.
Why a Parcel Tax?
Even if voters are willing to approve a public school tax measure designed to raise $9.0 million, they may object to the type of tax proposed to accomplish this. Voters approved the City’s 2018 sales tax increase, in part, because one-third of the additional sales tax revenue comes from visitors to Burbank. And Burbank residents are still free to buy a big-ticket item in an area where the sales tax rate is lower. As taxes go, transient occupancy taxes (the “bed tax”) are even more popular since nearly all the revenues come from non-residents. But except for seniors or some of the disabled, the EPT could not be mitigated or avoided, short of moving out of the District.
So why a parcel tax? Unfortunately, the District has fewer taxing options than municipalities and other local government agencies. By law, the District can’t increase the sales tax rate, or impose a bed tax. The alternatives are revenue bonds and parcel taxes.
Revenue bonds can be used to renovate existing school facilities or add new ones, but cannot be used to increase staffing or boost salaries. But in the recent past the District has completed its (mostly renovation-oriented) facilities program. And as reflected in Measure I’s spending purposes, the District maintains that staffing and salary levels are key to maintaining (and in some cases enhancing) the quality of education. The EPT becomes the only practical alternative by default.
Supporters of the parcel tax assert that it’s a local source of school funding that the State of California could not take away. Opponents of the EPT disagree, citing Sate actions (albeit decades ago) that took away local funding in an attempt to equalize per-pupil funding across economically unequal school districts. They urge instead that the State be politically pressured into increasing school funding, noting that California ranks in the bottom 10 states in school funding. Supporters counter that, however desirable increased State funding might be, it’s unlikely to occur anytime soon.
Some have pointed out that over 1,300 students do not have parents living in Burbank, and these non-resident parents would not be subject to the parcel tax. These students are not displacing the nearly 14,000 students living in Burbank, which have first priority. Rather, the out-of-District students are occupying seats that would otherwise be empty and generate no revenue. (Recall that school funding is on a per-pupil basis.) Moreover, out-of-District parents could always choose to revert to their home school district if they were forced to pay some fee equivalent to what an EPT may have generated were they Burbank residents. All things considered, it may be wise to regard the 1,300 out-of-District students as already providing a net-positive for the District’s financial health.
Some voters may flatly reject Measure I if they conclude that, in at least their case, a parcel tax is just too objectionable. Other voters may be willing to support Measure I in spite of having disliking parcel-based taxes, but will on that account need a particularly strong assurance that the District will make effective use of the funds raised.
Does the District really need $9.0 million?
Based on its stated purposes, most Measure I revenues would go to maintaining the existing quality of education, with some programs enhanced. In recent years, the District has raised all of its schools from a 5 or 6 rating (10 highest) to schools with no ratings lower than 8. Maintaining these gains would understandably be important. But why is an additional $9.0 million is required to do so, and how has the District managed in the past 16 months following the defeat of an earlier proposed parcel tax.
Sacramento is the culprit. In order to reduce its own share of pension expenses, the State of California has unilaterally imposed increasing pension liability payments upon California’s local school districts, including Burbank’s.
- Up through FY 2013-14, District employees paid 7% of their paycheck toward their retirement, the District chipped in 7% and the State of California took care of the rest.
- Beginning in FY 2014-15, the State has been increasing the District’s percentage each year until it tops out at 20% in FY 2020-21, less than four months away.
- By then the District will be paying an extra $13.0 million per year compared to FY 2013-14 pension liability payments, before the yearly increases had begun.
Unlike the City of Burbank, the District has never had a legal option to forego its pension liability payments, even when the State’s pension funds were super funded. Nor did the District have the option of diverting its pension payments to a “rainy day” fund during the retirement system’s flush years. Nonetheless, the District can’t forego these increased pension obligations even when the State raises them without the District’s input or consent. So pension payment increases have, of necessity, been factored into budgets ever since FY 2014-15.
It should also be noted that the State, which accounts for about 95% of the District’s revenues, has only recently restored funding to the 2008 level, adjusted for inflation, but not adjusted for upping the District’s share of pension payments from 7% to 20%. California used to be 5th in the nation in per-student funding; now it’s 41st.
The District has become better at using funds efficiently. Voters naturally expect the District to be as cost-efficient as possible before asking for more revenues. Recall that in November 2018, the District was only aiming for a revenue increase of $9.0 million, whereas the impact of the increased pension obligations would become $13.0 million by FY 2020-21. That’s an indication that the District had been making judicious cuts from FY 2014-15 to FY 2018-19, when the increased costs of the pension payments were relatively small.
The challenges have been greater since FY 2019-20, as the increase in pension costs relentlessly climb to 13 million annually. Spending cuts continue, some of which are tolerable in the short term but detrimental over the long term, notably delayed cost-of-living increases. Nevertheless, like the earlier Measure QS, Measure I has kept the proposed EPT at 10 cents per taxable square foot. Evidently the District has found its way to absorb $4.0 million of the $13.0 million through various cost efficiencies. Moreover, in recent years, the District has improved its management of capital projects, mainly by engaging professionals for whom project management is a core competence.
Several proven cost saving practices will continue. The District and the City will continue working together for their mutual benefit; City parks that use District school property is one notable example. The City provides some $1.9 million in annual support that would otherwise have to be covered by the District:
- School Resource Officers: $363,000
- Joint-Use Agreement: $435,000
- After-school Programs: $360,000
- School-based counseling: $245,000
- Crossing Guards: $466,000
- Disabled student transportation to schools: $11,000
- Public Works free recycle bins and pick-up service: $20,000
Additionally, the District takes advantage of a statewide contract and buys in bulk, with substantial annual savings over earlier purchasing practices.
It would appear then that the $9.0 million is needed to avoid a loss of muscle not the retention of fat. Specific programs on the chopping block would include:
- Teachers (by increasing class sizes)
- Career Technical Education courses
- Elementary Music
- Middle and High School Arts
- Gifted and Talented Education (GATE) program
- Elementary PE program
- Middle School Spanish courses
- Technology supports
These cuts would make it difficult for the schools to retain their current high ratings.
Specific issues: teacher salaries and class sizes
Voters may accept that a parcel tax is the only means of raising revenues for day-to-day costs, of which 80% is labor-related. They may also appreciate that the District has made a significant effort to reduce costs. But they may question the nexus between education quality and teacher salary increases or class size.
Some voters may point out that Glendale teachers handle larger classes than in Burbank, while Los Angeles teachers handle tougher learning environments than in Burbank. And that’s why they’re paid more.
But Burbank teachers are the big reason why school ratings have climbed from the 6’s to the 8’s, putting Burbank public schools in the top 20% of California public schools generally. Every Burbank public school has received State recognition as a distinguished, Gold Ribbon school. An estimated 6-to-11% of school aged Burbank children go to private schools; the low percentage is consistent with the excellent reputation, and performance, of Burbank’s public schools. Achieving and maintaining high public regard not only requires a teacher with talent, but also a teacher with a willingness to devote many extra, uncompensated hours of going the extra mile in lesson preparation and professional development. This level of dedication is needed from much of the support staff as well.
So why are the District’s teacher salaries 45th out of 47 unified school districts within Los Angeles County? Indeed, the District receives the lowest amount of local funding per student among these districts; when state funding is taken into account, the District is second to last. Arguably, COLAs at reasonable intervals make it easier for the District to retain the quality, dedicated employees it needs for continuing to have quality schools.
Studies have shown that smaller class sizes are important up to about 3rd grade, and not so important to education quality after that. The District has a particular education initiative of having only 24 students per class for kindergarten through 3rd grade. Beyond 3rd grade, class size is more a matter of balancing workload, taking into account the impact on teachers’ working conditions versus cost savings.
If Measure I passes, the Independent Citizens’ Oversight Committee may well ask the District to not only account for the appropriate use of Measure I funds, but for how well they produced measurable results.
Immediate Cost Impacts of the EPT on Taxpayers
Some voters will reject Measure I based on cost impacts alone. Their personal financial or business situations may be such that no public benefit claimed for the EPT, even if granted to be true, is worth the additional financial harm it would cause. Measure I attempts to shrink this potential class of voters by exempting home-owning seniors and lower-income disabled. And because those having parcels otherwise exempt from ad valorem property taxes in a given tax year would also be exempt from the parcel tax in the same year, Measure I spares many non-profits, which have their own perennial budget challenges.
As for everyone else: residential parcels would provide about 35% of the $9.0 million raised by the EPT; commercial property, about 48%; and apartment building owners, about $17%.
- For a cozy single-family residence of 1,000 square feet, the EPT would be $100 yearly. For a more typical Burbank residence of 2,000 square feet, it would be $200 yearly. For a residence of 5,000 square feet, it would be $500 yearly.
- If a single–family resident decides to add two additional adult dwelling units (ADU’s) of 500 square feet apiece, the EPT would be $50 per year for each one. The initial rental rate for these ADUs would likely be set taking this into account.
- A commercial building owner with 50,000 taxable square feet would pay an additional $5,000 yearly. Depending on market conditions or provisions in a lease agreement, some or all of this amount could be passed on to the lessees.
- A major landlord owning 1,000 rental units, with an average of 1,200 taxable square feet per unit, would have at least 1,200,000 square feet subject to the parcel tax. At 10 cents per square foot, the tax liability would be $120,000 per year.
- A large corporate facility with 1,000,000 taxable square feet (think high rises) would pay $100,000 yearly. It is likely that a significant portion of this amount could not easily be mitigated, unless they were making large charitable contributions to the District; e.g., by contributing to the Burbank Educational Foundation.
The example concerning rental units merits further discussion. Under State law, landlords can only increase rents by 8% per year, raising the question of whether they could mitigate the EPT with higher rents. However, it’s likely that tenants would see an 8% increase even without the EPT for several plausible reasons: real inflation is more than 3%; Proposition 13 may be repealed for commercial properties in the November election; the State may further restrict annual rent increases down the road. So, relative to what they were planning to do anyway, landlords would experience the EPT as a pure hit to the bottom line and rate-of-return. So, while Measure I does not exempt senior citizen renters from rent increases due to the EPT, it’s probably a moot point.
Possible Long-Term Benefit Impacts on the Taxpayer
Everything else being equal, the relative quality of a community’s public schools significantly boosts property values, unless the absolute quality falls below a certain level. For example, if a community manages to retain a decent level of public school education, while surrounding communities suffer a loss in quality, then property values are likely to go up. But if a community is on a downward trajectory itself, even if surrounding communities are getting worse faster, property values are likely to stagnate or begin falling.
Conversely, if a community maintains its current, decent level of public education quality, but surrounding communities move on to excellence, then property values may fall.
Back in 2018, 86 Los Angeles County communities surveyed, today’s residential real estate prices were compared to the previous, pre-Great Recession peak prices for 86 Los Angeles County communities. (The actual year of the previous peak varied slightly from community to community.) Results: 30 communities were still below their previous peaks; nine had peaks up to 5% greater than their previous peaks; for 12, an increase of 5+% to 10%; and for 16, an increase of 10+% to 20%.
There were 19 communities whose current property values were more than 20% above their previous peaks. With an increase of 26% over its pre-recession peak, Burbank was firmly within this last group—and in light of current property values, continues to be. It shares the spotlight with wealthy enclaves like Beverly Hills, San Marino, and South Pasadena; and with beach communities like Santa Monica and Hermosa Beach.
Burbank is prosperous, but with a median income of around $66,000, it’s no Beverly Hills nor is beach volleyball just a short walk away. The drivers of Burbank’s property values are likely to be first, the housing/employment imbalance, then school quality, and then the range and quality of city services. In any given year other factors—like those that led to the Great Recession—may push real estate values downward, in spite of continuing positive factors. But the historic long term for Burbank has been upward.
While not necessarily relieving any cash flow challenges presented by property ownership, property appreciation does confer a long-term advantage that must be weighed against tax measures for purposes that tend to preserve that advantage.
Revenue Impacts on the District.
The District is blessed with a number of corporate supporters, donating to the Burbank Educational Foundation and Burbank Arts-for-All among other initiatives. Business owners with cross-generational ties to Burbank schools may decide to continue their level of charitable giving, even though the EPT hits both their business and their private residence. Other businesses, focused more on California’s numerous tax burdens generally, may decide the local EPT is the final straw that makes them vote with their feet.
A large publicly held corporation, even if publicly spirited, is another matter. A certain level of charitable giving can be defended on purely investment grounds, such as burnishing the image of a valuable corporate brand, or honoring the values of an influential class of stockholders (e.g., “green” investing.) However, past a certain point, an additional tax burden can mean a reduction in charitable giving, so as to mitigate the impact to the bottom line.
Would the EPT reduce charitable giving to the District? The major donors have been discreet on this question. However, it is significant that the Burbank Chamber of Commerce takes a neutral position on Measure I, electing to merely educate the community on its provisions. While better for the District than choosing to oppose Measure I, it’s reasonable to conclude that the business community is divided about Measure I. Business may also be holding their breath until the voters decide in November whether or not to repeal Proposition 13 for businesses.
So the District faces the prospect that EPT revenues may be accompanied by less charitable giving. If donations were focused on supplies and materials, the goal of teacher retention is not affected in the immediate term, but may be affected in the longer term.
Parents have the greatest incentive to support Measure I. If a parcel tax can maintain the high quality of Burbank public schools, then parents can in good conscience avoid the far higher costs of a private school—while still paying taxes in support of public schools they would no longer be using.
Apartment dwellers would probably see 8% rent increases per year with or without the EPT. Seniors and many disabled would be exempt from the EPT. These groups have an incentive to support Measure I if they are persuaded that it will allow the District to avoid going backwards to offering less quality education.
Businesses facing EPT’s in the tens of thousands of dollars have the least incentive to support the EPT, particularly if they are answerable to stockholders. The District may have to commit to further increasing education quality across the board (perhaps all the way to the level of the high school choir programs) so that the District is in the top 1% nationwide. Any company contributing to that level of success would arguably have a bragging point that increases the value of their brand.
In any case, the District’s challenge is to get two-thirds of the voters to approve Measure I, while retaining the good will of major corporate donors.