For years, the state Department of Finance has said those counties are miscalculating the amount they owe to the fund by omitting kids in charter schools from their daily attendance counts. The state uses those figures to determine how much money it allocates to school districts.
The counties thought recent lawsuits had settled the issue in their favor. However, under the governor’s current budget, charter schools would be counted for ERAF funding, which would essentially remove the excess property tax revenue that the counties use in their general funds.
“For more than 30 years, these revenues have been directed to fund K–12 schools, but charter schools have been recently left out of the equation,” H.D. Palmer, a spokesperson for the state Department of Finance, said. “This proposal would ensure that all local educational agencies receive these funds.”
In February, Matthew Hymel, then-Marin County executive, wrote a letter to state lawmakers calling the move unconstitutional, saying it would cost the county $1.1 million per year, affecting some 65 governmental entities.
“This is the latest in a series of attempts by the State Department of Finance (DOF) to take constitutionally protected funds from local governments for State use at the expense of local health and safety programs and services,” Hymel’s statement reads.
More than $47 million is at stake in Santa Clara County, between the county and its cities. County Executive James Williams argues that the governor’s proposal goes against a 2004 constitutional amendment passed by voters that precludes state lawmakers from enacting new “ERAF shifts” to take property tax money away from local governments.
“There should be no more grab of local government money, and that’s why we’re urging the legislature to reject this,” Williams said.
Michelle Allersma, director of budget and analysis in the San Francisco Controller’s Office, said San Francisco alone risks losing $43 million a year, which it uses to pay for basic services. It began using excess ERAF in the 2016–17 budget year.
“We’re still kind of pulling ourselves out of the kind of pandemic aftermath,” Allersma said. “We’re still working on building back our local economy, so $43 million is objectively just an incredibly large number for us to backfill.”
Williams said the dispute goes back to 1988 when California voters passed Proposition 98, which guarantees funding for K–14 schools through a combination of money from the state’s general fund and local property taxes, creating ERAF. Property taxes fill those funding buckets first. If the counties don’t supply enough, the state’s general fund fills the rest.
The Bay Area counties at issue have five of the six highest property taxes per resident in the state. That means their share of the buckets gets filled, and the leftover flows back into the counties to fund other services, like public health and safety.
“The specific change that they’re proposing is to add another bucket: charter schools,” Williams said. “Today, that bucket gets filled by the state general fund. Instead, the Department of Finance wants that bucket to get filled by ERAF.”
The Department of Finance previously tried to make that change through a directive from the state controller. That ended up with all interested parties in court.
A 2020 report from the Legislative Analyst’s Office said the five counties were calculating their ERAF “in ways that seem contrary to state law and shift too much property tax revenue from schools to other agencies” to the tune of roughly $170 million per year. They anticipated that the amount would rise every year as property taxes increase.
At the time, the Department of Finance said ERAF funding calculations should include charter school daily attendance numbers. In response, state lawmakers compromised with the five Bay Area counties, holding them harmless for past years so long as they followed guidance from the state controller. The Legislature passed the 2020–21 budget, assuming counties would meet the higher Proposition 98 guarantee by counting charter schools.
However, the controller’s guidance (PDF), issued in February 2021, omitted charter schools from the definition of a school district in terms of ERAF funding “because they do not directly receive property tax revenue.”
