Prop 38 Cheat Sheet: Molly Munger's Tax for Education

Voters will be faced with two conflicting tax measures on the November ballot. One is Prop 38, also referred to as the Local Schools and Early Education Investment and Bond Debt Reduction Act, which has been funded almost exclusively by its proponent, wealthy civil rights attorney Molly Munger. The other is Prop 30, which is backed by Gov. Jerry Brown. Brown took his plan to the people after an earlier attempt to close the budget gap by raising personal income taxes failed in the state legislature. Both ballot measures focus on protecting education funding, but they go about it in different ways.

Prop 38 would raise the income tax rate on most Californians, where Prop 30 targets only those who make more than $250,000 a year. The amount of the increase would depend on the individual's tax bracket (see "What Your Vote Means" below). The revenues would go into a special fund called the California Education Trust Fund, or CETF. From there, the money would have to be used for three specific purposes, in the following proportions:

  • to pay for schools (60%)
  • to pay for Early Care and Education (ECE) programs (10%)
  • to pay down state debts (30%)

However, beginning in fiscal 2017, the proportions would shift. The amount allotted for schools and ECE would be capped using a formula that takes into account the average growth in Californians' per capita income during the first five years the law is in effect. Any revenues in excess of this cap would go toward debt payments. The rest would be split, with 85% going to schools and 15% going to ECE.

One critical point to consider is how the two November tax measures (Prop 30 and Prop 38) would affect each other should both pass. The state constitution already provides that when two measures conflict, the one with the most votes prevails. In addition, sections in both Prop 30 and Prop 38 explicitly bar the other from taking effect. Even if you vote for both, only one can win. And if Prop 30 loses, the so-called "trigger cuts" built into the current state budget would go into effect.

Prop 38 has a number of very specific rules about the distribution of funds, and it is well worth your time to read the summary from the Legislative Analyst's Office. And here's the full text of the prop.

WHAT YOUR VOTE MEANS
Voting YES means that you approve of the new taxes and would like them to be allocated to schools, ECE programs, and state debt repayment. If Prop 38 prevails, then Prop 30 cannot, and a series of trigger cuts built into the state budget will go into effect. Taxes would increase according to the following table:

Single FilerJoint FilerHead-of-HouseholdTax Rate Increase
<$7,316<$14,632<$14,642--
$7,316-$17,346$14,632-$34,692$14,642-$34,6920.4%
$17,346-$27,377$34,692-$54,754$34,692-$44,7210.7%
$27,377-$38,004$54,754-$76,008$44,721-$55,3481.1%
$38,004-$48,029$76,008-$96,058$55,348-$65,3761.4%
$48,029-$100,000$96,058-$200,000$65,376-$136,1181.6%
$100,000-$250,000$200,000-$500,000$136,118-$340,2941.8%
$250,000-$500,000$500,000-$1,000,000$340,294-$680,5891.9%
$500,000-$1,000,000$1,000,000-$2,000,000$680,589-$1,361,1782.0%
$1,000,000-$2,500,000$2,000,000-$5,000,000$1,361,178-$3,402,9442.1%
Over $2,000,000Over $5,000,000Over $3,402,9442.2%
Source:Legislative Analyst's Office

Voting NO means that you reject the tax increase. The school funding and debt repayment plan laid out by Prop 38 will not go into effect.

WHO/WHAT IT WOULD AFFECT
Taxpayers: Most Californians would be faced with at least some form of tax increase. See the table in "What Your Vote Means" above.

Public Schools: Public schools could receive as much as $10 billion in the first year. The bulk of that money (70%) would be distributed to schools on a per-student basis, with more money for students in higher grades levels. Additional money (18%) would be allotted to schools based on the number of low-income students enrolled. The final portion (12%), also distributed on a per-student basis, would be dedicated solely to technology -- allowing for the purchase of new equipment and teaching materials and also for teacher training. The money would be tied to a series of restrictions and mandates, including that school districts seek public input before deciding on how to spend the money.

Early Care and Education Programs: ECE programs are those that, like preschool, begin before kindergarten. Current funding levels don't come close to supporting the number of children eligible for subsidized programs in the state (of children ages five and younger, about half are eligible but only 15% are served, according to the legislative analyst's office). Prop 38 would restore some of the funding that was cut in a series of budget reductions since 2008. It would also create a rating system for ECE programs, establish a statewide database to support program management, begin an Early Head Start program modeled after the federal one, and would expand subsidized preschool for children of low-income families, among other things. ECE programs are expected to get about $1 billion a year for the first few years if Prop 38 passes.

State Budget: A share of CETF funds each year will go toward paying down state debts, with the priority on education debt-service costs. That means more General Fund money can go to other public programs and to balancing the budget, according to the legislative analyst.

WHO'S BEHIND IT
Wealthy lawyer Molly Munger is the principal financial backer and proponent of Prop 38. Other than her own contributions, only one minor donation has been reported as of Aug. 14 -- $25,000 from the Atlas Family Trust, compared with $13.8 million from Munger herself.

WHO'S AGAINST IT
Those interests that have lined up behind Jerry Brown's tax measure, Prop 30, are naturally opposed to the Munger plan. In addition, the California Democratic Party has come out against the measure. However, no major donations to the opposition campaign have been registered with the Secretary of State's office.

ARGUMENTS BEING MADE FOR
Prop 38 restores education money that was cut from the budget in recent years, guaranteeing billions of dollars to local schools based on enrollment -- an average of $10 billion annually over 12 years.

It will prevent more cuts by setting aside $3 billion a year through 2017 to help repay state education bond debt.

It prohibits the legislature from diverting or borrowing the money, and the money cannot be used to replace current education funding.

Money is distributed on a per-pupil basis and must be spent at the school.

The money cannot be spent to increase salaries or pensions of school personnel.

Spending decisions will be made locally and will require public input.

School districts will be accountable for improvement at each school and must report how they money was spent.

ARGUMENTS BEING MADE AGAINST
Prop 38 is a massive tax hike for middle-class taxpayers and small businesses. It will damage small businesses that pay income taxes as individuals rather than as corporations.

It will kill jobs in small and family businesses where most job growth is taking place.

It can't be changed once it's passed, so it will continue for 12 years even if there is evidence of fraud or waste.

It gives Sacramento $3 billion a year for four years to spend how they please.

It creates a costly new bureaucracy by forcing schools to go through complex red tape just to receive basic funding, and it creates new programs even while necessary school functions have been cut back.

It will do almost nothing to improve student performance.

FOR THE RECORD: An earlier version of this post incorrectly referred to Molly Munger as a "tax attorney." It also may have implied that voters are only allowed to choose one of the tax measures, Prop 30 or Prop 38. Voters are free to cast their ballots how they choose. For a more detailed explanation of what would happen if both should pass, see this explainer.

Top Photo: A volunteer at St. Anthony Foundation sorts through bins of backpacks filled with school supplies in August 2009 in San Francisco. St. Anthony Foundation gave away hundreds of backpacks filled with back-to-school supplies to needy children in San Francisco's Tenderloin neighborhood. | Credit: Justin Sullivan/Getty Images

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The California State PTA supports Prop 38 because it is the ONLY initiative that GUARANTEES money for our schools. This money DOES NOT pass through Sacramento and CANNOT be touched by the legislature. This is funding is over and above the legal minimum the governor sends down to our school districts. Even with the governor's threatened trigger cuts, students would still come out ahead if Prop 38 gets the most votes.

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Hey, I have a great idea! Let's just tax all the parents of children going to school!!!! I have no children so why should I pay. This will fix all the illegals on a free ride through our system!

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Your ignorance astounds me! You are obviously not familiar with Americas history. If you paid enough attention in class you would have caught the fact that during the 1800s people from all over Europe migrated to the "New World" and removed the Natives by force to claim this land as their own. Therefore, if you analyze the history you'll see we are all immigrants because our ancestors were not born Americans. I have no children either, however, those children are the future of tomorrow and many of them will one day make decisions that affect you when you are a senior or your potential children. I don't know about you, but I would like them to be educated people.

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This is incorrect information. It gives parents the impression that they can only vote for either prop 30 or prop 38. Truth is you can and should vote for both. There are many districts in California that will lose up to 3 weeks of school if both initiatives fail. We have already lost libraries, school nurses and are suffering from growing class sizes. For the correct information, I check Educate Our State. A non-partisan, non-profit group of 45,000 parents, teachers and community members. http://www.educateourstate.org/ There is a fact sheet on both initiatives.

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There is absolutely no way any school measure will pass unless we vote for both. If we want to complain about costs, let's look at the stress on our prison and social welfare system, as we have already cut $20B from the school budget in the last four years (as those other costs have increased). The fact is, schools need to preserve the little funding they have, and passage of Prop 30 or 38 will do that for the short term. In the extremely unlikely event that both pass, the one with the most votes would go into effect. Emphasis on extremely unlikely. If you care about kids and the future of this state, please vote for both 30 and 38. If you care about the state budget and the long term societal costs (and that includes serious $$ investment required that will have to come from somewhere when you do not educate), please vote yes on 30 and 38.

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The sad truth is, it will be extremely unlikely to pass either prop 30 or 38. If we want to sustain the little school funding we have, we need to vote yes on both propositions. We have seen, with the increase in prison costs and social service costs, the effect of cutting $20 billion from schools the last four years. If you care about the future of our children and the future of our state, we must fund education. If you care about the cost of not investing in schools, you can see that is much more expensive. It costs almost 10x as much per year to incarcerate a prisoner, and 40x as much to incarcerate a juvenile. Not to mention the costs of supporting someone in the social welfare system. So, if you care about kids, if you care about California, or if you just care about what it will cost the state and thus your pocketbook, please vote yes on 30 and 38. Again, neither will pass if you do not make that decision, and only the one with the most votes will go into effect.

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Thanks everyone for the comments. Andrea, you raised an interesting point, enough that I felt it warranted further explanation and wrote another article, "What Really Happens If Both Props 30 and 38 Pass?" which you can read at the following link: http://www.kcet.org/news/ballotbrief/ballot-measures/prop-30-prop-38-both-pass-california.html . I have also corrected the first line on this cheat sheet and on the one for Prop 30 to eliminate any confusion about what voters can or cannot do. Voters do not have to choose BETWEEN the two, but they will be faced with competing measures. Vote for both, vote for one or vote for none, but it's our position that the public should at least be aware of how the two measures interact.

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@MimiB: Although you have no children, you care greatly about the quality of education that all children in America receive. The reason America is strong is because we have highly productive workers. Education helps make our workers highly productive. Manufacturing didn't move to China because wages were low; manufacturing moved to China because education in China had risen enough so that the productivity for those low wages had become cost effective.

We have moved away from the agricultural economy of the 18th century, and we've moved away from the manufacturing economy of the 19th century. We've just started to see the amount of education that will be needed as we've moved into a knowledge economy in the late 20th century. A highly educated workforce will be increasingly needed during the 21st century to fulfill the promise we are seeing with software, electronics, materials science, nanotechnology, biotechnology... DVDs, flat screen LCD TVs, carbon fiber cars, a cure for cancer, carbon fiber windmills, thin film residential solar panels... these products require a highly educated workforce. In return, they give us lower prices, better features, and higher profits. And the higher profits fund things that benefit you: defense spending, or roads, or mass transit, or improved health care.

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You folks must be kidding? Holding the kids hostage again? Let's solve this by cutting the huge pension benefits enjoyed by these union thugs. Increasing taxes via prop 30 or 38 will have the negative effect of driving out jobs and people who are the engine of the tax base. Holy cow.

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I thought we already found the cure for cancer? Called a plant-based diet.

Anywho, I am a college student voting No on 30. I can't believe taxing everyone and a double tax on the rich is the Governors "solution." Time for alternative solutions and THE EDUCATIONAL SYSTEM REVOLUTION WILL SOON BEGIN!!!!

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The idea that "cutting waste" or engaging in fiscal "reform", would save the kind of money necessary to maintain the balanced budget created by the Governor is just not supported by the figures - shuttering the States 15 largest programs (including the entire court system) would only account for 1/2 of the money needed. For actual fact-based analysis including source citations on these issues and more visit this site: http://politomuse.wordpress.com/propositions-nov-2012/proposition-30/ ; http://politomuse.wordpress.com/propositions-nov-2012/proposition-38/; for a more concise explanation of the distinctions between 30 and 38 see http://politomuse.wordpress.com/2012/10/14/oh-molly-why-californians-need-to-reject-38-and-approve-30/