Tuesday, November 8, 2011

Mahendra Prasad Explains California's Crisis in Higher Education

As Berkeley prepares for yet another walk-out in an effort to bring the decline of California's higher education sector to the state's attention, there will undoubtedly be much debate about who is to blame.  This is no easy feat given the complexity of California's politics and the layers of responsibility.  But Berkeley Political Science PhD Candidate Mahendra Prasad, who studies voting systems, rightly puts the little-understood bogey of California politics--Prop 13--at the heart of the matter.

Explaining Cuts in Education, Hikes in Fees, The California Budget Crisis, and Prop 13
By Mahendra Prasad: UC Berkeley Political Science PhD Candidate: mrprasad@berkeley.edu

“….[W]hen US News & World Report first came out with its annual college rankings in 1983, BERKELEY WAS 5th in the US. But because of these budget problems, the state has been forced to make cuts, which threaten this system. Today, BERKELEY IS NO LONGER AMONG THE TOP 20 undergraduate institutions according to US News….”

The reasons why education cuts are happening are complicated. In this note, I hope to explain why we have come to the current crisis. Historically, the state of California had been the primary source of funding for Californians qualified for higher education. But today, the state spends less than 50% per student in real dollars than it did in 1990. In order to compensate for these cuts by the state, the UC Regents have increased the costs borne by Californians for their education. For example between 2001 and 2010, they raised student tuition by approximately 150%. And while the Regents and UC administration haven’t necessarily made the best decisions, it is not fundamentally their fault. The problem goes beyond them to the governor, the state legislature, and propositions. To understand, a good start is Prop 13 from 1978.

What’s Prop 13?
In 1978, Proposition 13 was passed by initiative and became an amendment to the California state constitution. The following were among its provisions: (1) property taxes cannot be greater than 1% of the appraised value of a property, (2) unless there is a change in ownership, the annual increase in property taxes cannot be greater than 2%, and (3) any increase in state taxes cannot be passed without 2/3 support in both houses of the California state legislature or by majority vote in a referendum or initiative.

These provisions of Prop 13 have caused many problems since 1978. First, property taxes were a historically important state revenue source. By capping property taxes at 1% of appraisal, the state was severely hampered in its ability to generate revenue to offset spending. But this is the least of Prop 13’s problems.

Second, there was the limit of annual property tax increases to 2%. On average, annual inflation in the US has been 3% historically. Thus, even if 1% of appraisal is a reasonable cap on property taxes, the state is losing revenue in real money in the long run. For example, suppose that in 1978, a given property were taxed at 1% of its appraisal in 1978, and the amount taxed each year increased 2%. Given 3% annual inflation, the state would be losing more than 27% in tax revenue on that property in real dollars!

Third, other possible avenues of generating revenue for the state have been limited by Prop 13. Recall it requires a 2/3 majority in each house to pass a tax increase unless there is passage of a proposition. Given that several state legislators have signed petitions saying they will never vote for a tax increase in order that they get campaign donations and endorsements from powerful interest groups that distribute these petitions, this avenue has been shutoff.

How Has Prop 13 Failed?
One might argue that these provisions in Prop 13 are great in the sense that they might force the state government to reduce wasteful spending. But this hasn't happened for at least two reasons.

First, while it requires two-thirds majorities to increase taxes, it only requires simple majorities for the state to increase spending. Thus, it becomes much easier for the state to produce budget shortfalls, since spending does not require the level of support taxes need.

Second, if an initiative has a sufficient number of signatures to get it on the ballot (i.e. 8% of all voters in the last gubernatorial election, a number of signatures which a wealthy interest group can easily acquire by paying some political services firm relative peanuts to get the signatures), then if the initiative gets a majority of votes, then it becomes a constitutional amendment to the state constitution. Thus, if there were some initiative with enough signatures that said the state needs to pay and complete some state of the art bridge to nowhere (so some corporate interest gets a huge building contract), and it got a simple majority of votes, then the state would be constitutionally required to produce the funds to build this bridge to nowhere. What's worse is that initiatives aren’t required to specify where money comes from for spending projects. So it’s easy for interest groups to sell their propositions to the public as not costing money, but then require the state to use its few dollars to accomplish special interest goals.

This inability of the state to generate revenue, but the easy ability of interest groups to force the state to spend money makes it virtually impossible for the state to prevent budget shortfalls. But because the state is required to balance its budgets, and since it lacks the ability to generate revenue, it is forced to make cuts from state economic drivers like education and spend from its emergency funds on special interests.

Now for a long time, the state of California has had a state of the art higher education system that created high paying jobs and gave opportunities for advancement to hard-working poor and attracted talented persons to the state. For example, when US News & World Report first came out with its annual college rankings in 1983, Berkeley was 5th in the US. But because of these budget problems, the state has been forced to make cuts, which threaten this system. Today, Berkeley is no longer among the top 20 undergraduate institutions according to US News. The state is shooting itself in the long run in terms of job growth and opportunity for hard working people and bringing talented persons to the state with all of these cuts to education.

How Do We End Education Cuts and Fee Hikes and Resolve Our State Budget Crisis?
But while it has gotten close to reaching the breaking point, we are not there yet, and there are ways to prevent it. Primarily, the state constitution needs to be amended in order to eliminate Prop 13. In general, here is what needs to be accomplished:

First, repeal Prop 13. State legislators need to know we Californians want Prop 13 overturned. If they know this, brave politicians will have ammo to take actions to prevent budget shortfalls.

Second, changes in state spending or state taxes should require the same level of legislative support (e.g. both requiring legislative simple majorities). This will make it harder for budget shortfalls to occur.

Third, all initiatives and referendums should be required to state where they will get the money to pay for any increases in state spending. This will make them more transparent and help prevent future wasteful spending.

Fourth, while initiatives and referendums that only change state law should only require simple majorities to pass, initiatives and referendums that change the California constitution should require supermajorities (e.g. 2/3 popular support) in order to pass. Constitutional rights shouldn’t be turned out on whim.

With these four steps, California will eventually be able to avoid budget shortfalls and have the money available to properly fund California higher education. With such support, California can continue to give opportunities to the hard working and bring talented people to the state.

The views expressed in this piece are those of Mahendra Prasad as an individual and are not to be inferred as the views of any other person or entity.


  1. I'd like to add one thing. A few people have asserted that repealing Prop 13 will throw grandma into the street when the property value of their house skyrockets.

    I think it is completely reasonable for there to be statutes which cap property taxes for say, people's homes (as opposed to homes people or corporations own but don't live in). What is insane is that there are caps on millions of acres owned by corporations and other speculators.

  2. That's absolutely right. In 1978 the Governor (one Jerry Brown) and his allies made a last ditch effort to get a different measure passed--one which would have provided the kind of aid that Prop 13 does for struggling homeowners while still asking wealthy property owners and corporations to pay their fair share. Unfortunately, the rather more indiscriminate version of Prop 13, which has had such a destructive effect on our state, already had too much momentum. The rest, as they say, is history.