What You Need to Know About School Taxes on Your Property Tax Bill

What is the Educational Revenue Augmentation Fund (ERAF)?
 
In the early 1990s, the State of California was in a serious financial deficit position, yet they have the obligation to fund certain levels of education under Proposition 98.

In order to meet its obligations, the State of California enacted legislation that authorized the shift of property taxes collected from the local government such as cities, counties and special districts to have funding for education.

They instructed the county auditors to shift the allocation of local property tax revenues from local government to “educational revenue augmentation funds” (ERAFs), directing that specified amounts of the city, county, and other local agency property taxes be deposited into these funds to support schools. This shift first had an impact on the 1992-1993 state budget and they transferred over $3.7 billion in property tax revenues from cities, the county and special districts. On the same year, they made numerous changes to the Revenue and Taxation Code to modify the calculations.
 
Redirection of Property Taxes

In the year 2004 to 2005, the allocation of ERAF was affected by the three shifts of property taxes from school agencies to local government occurred. Since their inception of the shifts, it deprived local governments of nearly $110 billion. Counties have borne some 73 percent of this shift; cities have shouldered 16 percent. The first tax shift is known as the “Triple Flip” began in March 2004, voters approved a bond initiative known as the “California Recovery Act.” This act authorized the issuance of $15 billion in bonds to finance the 2002-2003 and 2003-2004 state budget deficits. The revenue stream for payment of these bonds was established by the redirection of tax revenues through the “Triple Flip.” 

Under the “Triple Flip,” one-quarter of the local governments’ 1% share of sales taxes are re-directed to the state as a dedicated revenue source for the bond repayment. It redirected the property taxes from schools to pay two obligations: deficit-financing Economic Recovery Bonds and losses on the reduction of Vehicle License Fees (VLF). The first transfer was over $1 billion a year of education-allocated property tax to fund the deficits, then $4 billion a year to fund the VLF cuts. The loss of ERAF property taxes to the school agencies is then backfilled with state aid. It is anticipated the swap of sales taxes for property taxes will terminate once the deficit financing bonds are paid, which is currently expected in 9-13 years.
 
From 2014 to 2015, the state redirected $8.4 billion of stable, reliable, local school funding. The California citizens are crying out for the return of the diverted property taxes to help improve the poorest districts to aid kids’ education.
 
Property Tax Bill

In 2013-14, California property tax bills totaled $58 billion which is more than the State and its local governments collected from any other tax, except the state’s personal income tax.

• The 1 Percent Tax. The imposition of a 1 % general tax levy on behalf of the other local governments in the county. The California Constitution limits this charge to 1% of the assessed value of land and buildings.  The assessed value of the property is based on the price paid for the property and the duration of ownership.  The assessed value of the property is determined annually by the property assessor. In 2013-14, the total assessed value of land and buildings in California was almost $4.6 trillion.

• Voter-Approved Debt Rates. The property tax bill also includes tax rates above the 1% tax once approved by the voters. Revenue from these higher rates pay for:

✔Pensions and other obligations approved by voters

✔Bonds issued for local infrastructure projects, such as schools and roads approved.

✔The voter-approved debt rates generated $6.6 billion.
 

• Direct Levies. The local governments also impose additional charges based on factors other than the property’s assessed value. Some cities impose property assessments to pay for street lighting and charge owners based on the size of their property.  Similarly, some school districts impose flat rate parcel taxes to pay for school programs.  Direct levies generated $6 billion which must also subject to the approved by voters or property owners.
   

Lastly, when a taxpayer paid the property tax bill to the county tax collector, county auditor distributes the revenues. Payments for voter-approved debt and direct levies are distributed to the local governments charging these rates. Payments for the 1 percent tax are distributed, according to formulas in state law, to local governments in your county and to a countywide multipurpose fund called the “Educational Revenue Augmentation Fund” or ERAF.