Los Angeles school district regroups after tax election failure

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The fiscal direction of the Los Angeles Unified School District is uncertain after voters decisively rejected a tax measure to increase funding.

Measure EE, a parcel tax on properties that would have raised $500 million annually for the district, suffered a resounding defeat June 5 with less than 46% of voters saying “yes” to a measure that needed a two-thirds supermajority to win. Parcel taxes require a two-thirds majority.

The defeat in the low-turnout election brings an end to any momentum created by the settlement of a six-day teachers' strike in January, and spurred second-guessing about the district's election strategy.

“The biggest problem with the election was the date,” said Dale Scott of the San Francisco-based Dale Scott & Company, a financial advisory firm that works with school districts.

Superintendent Austin Beutner encouraged the school board to move ahead by calling a special election quickly after polling showed the district was likely to win. But a lot changed as the vote drew closer — including extensive opposition from the business community.

The school district would have been more assured of success if school leaders had waited until the March 2020 Democratic presidential primary, in the Democratic Party-dominated city, or until the November 2020 general election, said Michael Coleman, fiscal advisor for the League of California Cities.

Research that has been done in general obligation bond elections has shown that the highest percentage of winning GO elections occur during a presidential election, Scott said. Though the measure was a parcel tax, Scott believes the same logic applies.

District leaders also failed to allow enough lead time for a proper campaign and should not have moved forward with what was a single-issue ballot for most voters, Scott said.

“The turnout was extraordinarily low,” Scott said. “That is death for a parcel tax, because you are going to get the most conservative voters when there is a low number of voters.”

Only 304,000 ballots were cast in the election in a district with about 2.3 million registered voters, equivalent to 12% turnout, according to the county registrar.

The Los Angeles Area Chamber of Commerce, Los Angeles County Business Federation and the Valley Industry Commerce Association came out in opposition. A BizFed spokesman, who declined to give his name, said it was opposed for a number of reasons, including that the district’s decision to levy the tax per square foot, rather than going with a flat tax, placed the burden disproportionately on businesses.

The tax would have represented a sixteen-cent-per-square-foot increase on property improvements. The median homeowner would have paid about $280 every year for the next 12 years.

“They need to go back and put their fiscal house in order, before they ask for more money,” the BizFed spokesman said. “They didn’t come to us, the L.A. Chamber or VICA before moving ahead.”

He added that BizFed has come out in support of other local tax measures that increased taxes for transportation and helping homeless people.

Coleman also said that getting buy-in from the business community can be a key element in getting a measure passed.

LAUSD’s school board approved plans to float the parcel tax in March, not giving the district long to organize. The thinking was the support received from parents during the teachers' strike could translate into a parcel tax victory. The measure would have helped pay for raises and smaller class sizes.

"So our work continues,” Beutner said in a statement following the election. “We’ll continue to reduce the bureaucracy and make sure every nickel taxpayers provide goes to schools.”

Jon Coupal, a spokesman for the anti-tax Howard Jarvis Taxpayers Association, saw the defeat of Measure EE as a sign of weariness among voters fed up with tax increases.

“There comes a point where people don’t think they are getting value for their dollar, and the argument, “it’s for the kids,” is wearing thin,” Coupal said.

The failure of LAUSD’s measure will probably give Sacramento Unified School District pause, Coupal said. Sacramento Mayor Darrell Steinberg suggested in May that the school district should consider floating a parcel tax in 2020 to help close a $35 million deficit.

“There were a lot of unique circumstances. It was not held during a regular election and had a small turnout,” Coleman said. “The groups bringing it to the ballot were not unified and you have to have that if you want voters to approve more money.”

Scott theorized that the cash-strapped school district went ahead with the election because it wanted the revenue available for fiscal year 2020, because if it waited until March, given the county tax-collection schedule, the money would not be available until 2021.

“Given the fact that we know that low turnout, or very difficult elections, make success unlikely, you have to ask yourself if there was some other strategy going on having to do with seeking state help down the road,” Scott said.

LAUSD is anticipating stronger financial results for fiscal years 2020 to 2022 than previously projected, Fitch Ratings wrote in a commentary on Monday.

"The district customarily outperforms its multiyear projections," wrote Fitch, which assigns the district an A issuer default rating.

That rating "assumes the district will again act to reduce the projected rate of unassigned/unappropriated general fund balance drawdown," according to Fitch. "The downward trajectory in the district's multiyear projections is pronounced and will be difficult to counteract meaningfully without significant changes to the district's expenditure profile, particularly now that new parcel tax revenues will not be forthcoming in fiscal 2020 onwards."

“We’ll ask those in Sacramento to make it possible to raise money to hire a teacher the same way we can build a school,” Beutner said. “We’ll ask the Governor and Legislature for additional funding for our schools and we’ll continue to inform the communities we serve about the need for local funding for local schools.”

The Legislature was considering ACA 5, a constitutional amendment to lower the parcel tax vote threshold to 55%, the same required for school bond measures, but it didn’t make it out of committee this year. Coupal said ACA 1, a parcel tax for housing and infrastructure, is “more of a threat,” and they will be fighting it.

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Public school funding State and local finance School bonds Los Angeles Unified School District California