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PRESCHOOL EDUCATION. TAX ON INCOMES OVER $400,000 FOR INDIVIDUALS; $800,000 FOR COUPLES.
Initiative Constitutional Amendment and Statute.

QUESTION

Should the California Constitution and state law be amended to create and support a new, publicly funded, voluntary preschool program for children to attend in the year prior to kindergarten, to be funded by an increase in personal income tax rates for high income individuals?

BACKGROUND

(This section is taken from the analysis by the Legislative Analyst in the Voter Information Guide.)

Prior to starting kindergarten, most children in California attend some form of preschool or child care program. There is wide variety in the types of programs offered.

Typically, a program where children are cared for in groups is referred to as center-based care, also known as a child or day care center, preschool, or nursery school. Survey data suggest that 62 percent of the state's 4-year olds attend some kind of center-based program prior to attending kindergarten. Participation rates, however, vary widely by family income level. For example, about 80 percent of 4-year olds in high-income families (earning over $75,000 a year) attend center-based programs, while the comparable figure for low-income families (less than $18,000 a year) is 49 percent. Children not in center-based care are tended by parents or relatives or served by other arrangements (including babysitters, nannies, and family child care providers.

All center-based programs must meet minimum health and safety requirements in order to be licensed by the state. Of the children in center-based care, about one-half are served by state and federal programs. These programs primarily serve children who come from low-income families. The three largest programs are:

• State Preschool. This program provides services for 3 hours a day, 175 days a year. It focuses on helping children with both academic and developmental skills. The state spends about $210 million annually for 4-year olds in the program.
• State General Child Care. This program, which typically runs 220 days a year, is similar to preschool in the morning, with adult-supervised enrichment programs in the afternoon. The state spends about $150 million annually for 4-year olds in this program.
• Federal Head Start. This provides both an education program and family support services--including health, nutrition, and social services. The federal government spends about $500 million annually for California 4-year olds in this program.

A variety of providers--both not-for-profit and for-profit--serve the other half of California 4-year olds attending center-based programs. Families typically pay for these services. Even though most center-based programs are licensed by the state, programs can vary considerably with regard to focus, structure, participation cost, and teachers' educational backgrounds.

PROPOSAL

The Preschool for All Act (PFA) includes constitutional and statutory provisions that would generate additional government revenues and expenditures for preschool services. The initiative would create an entitlement to one year of preschool services for all children born on or after June 6, 2006 and eligible for preschool beginning in the fall of 2010. (While the entitlement begins in the 2010-11 school year, the state could use revenues raised between 2007 and 2010 for early implementation of PFA, with priority given to children residing within the attendance boundary of low performing schools.) Participation in the preschool program would be voluntary. These services would be offered free of charge to the participant unless the PFA program experienced a funding emergency, in which case the Legislature could, with a two-thirds vote and the approval of the Governor, institute a parent contribution for one year. Even in this case, no child could be denied access because of inability to pay.

The Superintendent of Public Instruction (SPI) would have overall responsibility for PFA, and the program would be administered at the local level by county offices of education (COEs). However, the initiative makes an allowance for an alternative local administrator to the COE in the case that a countywide voluntary preschool program is already underway and receiving public funds. A ten-year phase-in period would be provided for the requirements of this initiative. When fully implemented in 2016-17, PFA preschool programs must consist of: (1) a minimum three-hour per day instructional program offered at least 180 days each year; (2) a curriculum based on state preschool learning standards and guidelines and aligned to the state's academic standards for kindergarten through third grade; and (3) classes of no more than 20 children taught by at least one credentialed teacher and one instructional aide.

Revenue Provisions

The initiative includes provisions that would generate additional income tax revenue and designate it solely for the new preschool program.

Personal Income Tax Provisions. Under current law, the maximum marginal personal income tax rate is 9.3 percent, generally applicable to individuals with taxable income over $40,000 and to married couples with taxable income over $80,000. In addition to this rate, Proposition 63 of 2004 levied a further 1 percent rate on taxable incomes in excess of $1 million, with the proceeds used for mental health services. Proposition 82 would impose an additional 1.7 percent tax rate on individuals with taxable income over $400,000, head of household filers with taxable income over $544,457, and married couples with taxable income over $800,000. (The additional 1 percent rate would still apply to taxable incomes in excess of $1 million.)

Preschool for All Fund. Revenue generated by the higher tax rate would be deposited directly in a PFA fund. These revenues would not be considered "proceeds of taxes" under the state's appropriations limit or any other limit on state expenditures and thus would not be subject to any associated limitations. The tax revenue also would not be considered when calculating the Proposition 98 minimum funding guarantee for K-14 education.

Education Expenditure Provisions

Under this initiative, the SPI would determine the disbursement of PFA funds to COEs, institutions of higher education, and the California Commission on Teacher Credentialing (CTC). The SPI would distribute monies from the PFA fund to support the following activities:

• program administrative costs at the state and local levels
• operation of a preschool program for eligible children
• purchase, construction, renovation, and leasing of facilities
• training of the preschool workforce, including higher education costs and financial aid
• transfers into and maintenance of operations and facilities reserve funds.

The SPI would determine a uniform statewide per-pupil rate for distribution of funds to COEs. In the early years of implementation, funds would be distributed based on the number of four-year-olds in each county. Starting in 2016-17, funds would be distributed based on the number of children actually enrolled in PFA programs.

State and County Administration. Up to 6 percent of the PFA funds could be used for state and local administration costs including oversight and monitoring; planning and needs assessments; data collection; development of standards, regulations, and guidelines; and development, approval, and processing activities related to the proposed new early learning teaching credential. The SPI and COEs would also have oversight responsibilities regarding audits, evaluations, and community outreach, among others.

Program Operation Requirements. The COEs would use PFA funds to support the provision of preschool services to eligible children. By July 1, 2007, each county superintendent of schools would be required to submit a five-year implementation plan to the SPI. While the entitlement for preschool services is established in the constitutional provisions of the initiative, these COE plans would serve as detailed descriptions and guiding documents for how each county would implement the PFA program. Major requirements of the plan would include the provision of:

• Access. The plans must guarantee each four-year-old child equal access to PFA programs. This includes ensuring preschools are located near students' homes and ensuring that children with special and/or language needs are accommodated. The COEs must also permit parents to choose among PFA schools.
• Coordination. The plans must ensure that PFA programs coordinate with local elementary schools and existing child care programs to maximize the extent to which the needs of families are met, including the need for full-day child care.
• Comparable Salaries. The plan must ensure that full-time preschool teachers and aides who have met the full qualification standards established by the initiative would be compensated similarly to teachers and aides in their county's K-12 public schools.
• Community Outreach. The plan must propose community outreach activities to ensure that families know about the program and how to access PFA services.
• Phase-In to Serve Lower-Achieving Areas First. The COEs that choose to offer PFA programs before the entitlement takes effect in 2010-11 must begin by serving children who live in elementary attendance areas that contain schools where student achievement is ranked in the lowest three deciles (as measured by the most recent California Academic Performance Index).

Once the SPI has approved their plans, COEs would receive PFA monies to fund qualified program providers including COEs, school districts, public higher education institutions, charter schools, and both non- and for-profit providers. Although they would receive funding from the SPI at a statewide per-pupil rate, the COEs would be required to include in the county's plan a schedule for the distribution of the county's PFA funds to program providers on a tiered payment system that provides an incentive based on factors relevant to quality and access.

Facilities. The initiative would provide a maximum of $2 billion to meet facility needs resulting from an anticipated increase in the number of preschool programs and enrolled children. These funds could be used to support construction, purchase, lease, or renovation of facilities. The SPI would distribute some funding to counties based on the number of four-year-olds in the county, and then would maintain a state facilities reserve to provide additional financial support to counties that demonstrate additional facilities needs.

Preschool Workforce Development. Currently, teachers in state preschools are required to hold a permit issued by the Commission on Teacher Credentialing, which requires 40 college-level units (including 24 units in early childhood development) or roughly one and a half years of college full-time. This initiative would require all PFA teachers to have a bachelor's degree by July 1, 2014. By 2016-17, preschool teachers would also need to hold a new early learning credential to be developed and issued by the CTC, which would likely require an additional year of college beyond a bachelor's degree. Requirements would also be established for instructional aides.

The initiative would provide up to $700 million to address the workforce needs expected to result from the training requirements that would be imposed by this measure, including:

• Student Grants. The measure provides up to $200 million in financial aid (scholarships or forgivable loans) to support full- or part-time students pursuing the additional training required for preschool teachers and aides. Costs would be spread across a maximum ten-year period, beginning in 2007-08. The program would give priority to individuals who: (1) commit to working in geographic areas that have teacher shortages, (2) have worked in the early childhood education field, or (3) have financial need. All students receiving aid would have to commit to working in the PFA program for an amount of time commensurate with the total amount of state assistance they received.
• Grants to Institutions of Higher Education. The initiative would provide up to $500 million in PFA funds to be used during the first ten years of the program for workforce development at the post-secondary level. These funds would support grants to public colleges and universities to develop, expand, and provide curriculum and courses in early learning, including a new post-baccalaureate teacher education program in early learning.

Other Provisions

Reserves. The measure states that during the first ten years after the effective date of the initiative, the state must establish a PFA operating reserve account. Each year, the SPI would make annual contributions to this account using the revenues generated for the PFA program, with the requirement that by the end of the tenth year, the account must contain funds equal to one year of operating expenses for full implementation of PFA. Subsequently, the SPI would annually determine the amount needed to ensure PFA is self-sustaining.

Funding Emergency. If the reserve fund were projected to fall below ten percent of the average annual operating costs of the program, the initiative would require the SPI to declare a funding emergency. Then the Legislature could enact legislation to institute a parent contribution for PFA services for a single year, with the SPI setting the level for that contribution.

Interaction with Other Funds. The initiative states that no funds provided by this measure may be used to supplant state child development funds. Thus, the amount the state is now spending for state preschool and child care would need to be maintained. In addition, COEs would be required to demonstrate that PFA funds would not be used to supplant state or federal funding for children with special needs.

Collective Bargaining. The measure provides all PFA employees with the right to representation and collective bargaining.

FISCAL EFFECT

Effects on State Revenues

Increases in Personal Income Taxes for Certain Income Brackets. The increase in personal income taxes on individuals with taxable income over $400,000, head of household filers with taxable income over $544,467, and married couples with taxable income over $800,000 would begin in 2007. It is estimated that revenues for the 2006-07 fiscal year (a one-half-year amount) would be roughly $ 500 million. These estimates would increase to about $2.1 billion in 2007-08, and then grow with the economy to $ 2.6 billion by 2010-11, when the preschool entitlement begins. However, past trends show that the group of income-earners who would pay this additional tax demonstrates significant year-to-year variability in taxable income. This suggests that the amount of revenue generated for PFA on a year-to-year basis may be somewhat unpredictable.

No Impact on Revenues that Determine Proposition 98 Guarantee. The initiative stipulates that revenues derived from the new tax would not count as "proceeds of taxes" in the Proposition 98 calculation for K-14 education.

Effects on Expenditures

This measure would develop and implement a new statewide voluntary preschool program resulting in numerous state and local costs-including costs for facilities, funding for higher education to develop a more highly trained and expanded workforce, and costs for actual PFA services. It is estimated that the expenditures needed to meet the requirements of the measure could be fully funded by the revenues generated from the additional tax described previously.

Limited-Term Expenditures

The PFA would necessitate expenditures related to the initial preparation and implementation of the act. These start-up costs, which can be considered as short-term and/or one-time, relate primarily to facilities and workforce development needs. As noted previously, the initiative would provide a total of up to $2.7 billion over ten years for these purposes, to be allocated in the following manner:

• $2 billion for construction, purchase, lease, or renovation of facilities
• $500 million for the state's public institutions of higher education to develop and offer course work in early education
• $200 million in financial assistance grants for students seeking to meet the requirements necessary to become PFA teachers and aides.

Ongoing Expenditures

The ongoing costs of implementing PFA would be driven primarily by expenditures related to program administration and instruction. The initiative would provide funding for these activities as follows.

Program Administration. The initiative would cap expenditures on state and county administration at 6 percent of the amount distributed from the PFA Fund, but the measure does allow for some program support activities, including evaluation and outreach, to be funded with additional monies beyond the 6 percent cap. It is anticipated that overall administrative and program support expenditures would total approximately $175 million a year in 2010-11, growing over time in proportion to overall program expenditures.

Instruction and Operations. Most of the PFA funds would be distributed to COEs on a per student basis for operating costs of the program. This funding would support the new preschool program, including costs related to teachers, teacher aides, other classroom support, and special education. Based on participation rates in other states that offer universal preschool, it is assumed that approximately 70 percent of the state's eligible children would choose to enroll in a PFA program once the program is fully implemented.

The program would generate enough funds to provide between $6,000 and $8,000 per participating pupil in 2010-11 for instruction and operations, almost double the funding currently provided for state preschool and approximately 75 percent of the estimated spending for each K-12 student. It is anticipated that this would be more than sufficient to fund the minimum requirements set forth in this initiative.

Funding Rate Dependent on Potential Cost Offsets. The estimated level of per pupil spending noted above assumes that the PFA program would take advantage of offsets from certain existing state and federal programs. The measure prohibits the state from using PFA funds to supplant funds for special education and childcare, including state preschool. Different interpretations of this language, however, would affect the level of PFA per pupil funding provided.

IMPACT OF YES OR NO VOTE

• A YES vote means that the California Constitution and state law would be amended to create and support this new preschool program, which will be funded by an increase in personal income tax rates for high-income taxpayers.
• A NO vote means that the proposed amendments to the California Constitution and state law would not be made to create this preschool program.

SUPPORTERS SAY

Prop. 82 strengthens elementary and K-12 education.

• guarantees every four-year-old child the right to a high-quality preschool education
• helps all children enter school ready to learn and learn to read by the third grade
• provides teacher training and raises standards for preschool teachers
• raises standards for existing preschools and creates new high-quality preschool programs and classrooms.

Prop. 82 encourages parental involvement.

• allows parents to choose among public, private and nonprofit preschool providers
• makes sure preschool programs are coordinated with local elementary schools.

Prop. 82 invests in our children and our future.

• For every dollar we invest in quality preschool, studies show we get more money back from savings on reduced remedial education, lower high school drop out rates, and the economic benefits of a better-educated workforce.
• Preschool takes advantage of a critical period when children's brains are developing rapidly, giving them a better chance to succeed in school.
• Studies show that preschool can help kids stay in school and out of trouble with crime, drugs, and gangs.

Prop. 82 protects taxpayers with strict financial controls.

• establishes a separate dedicated preschool fund that can only be spent on preschool education
• limits administrative expenses so that 94 percent of all funds go directly to children's education
• requires audits of county programs and establishes criminal penalties for misuse of funds, including possible jail time
• funded by 1.7 percent of family income over $800,000, and individual income over $400,000
• has no cost for 99.4 percent of California taxpayers.

OPPONENTS SAY

PFA will not be free.

• Analysts expect the estimated cost of PFA will be much higher than predicted.
• California schools are already experiencing severe budget cuts.
• If forced to absorb the unforeseen costs of preschools, there will be cuts in education that worsen the current fragile quality for K-12 public schools.

Public preschools will put private preschools out of business.

• Private preschools currently enroll 60 percent of the preschool age children in California.
• Replacing thriving businesses that provide jobs and tax revenue is bad for the state's economy, and reduces educational and childcare options.

California already provides preschool and daycare programs for families in need.

• State funded preschools are available to citizens on an income-need basis.
• These programs are under-funded and have waiting lists.
• Rather than overburdening taxpayers and our existing schools with Preschool-For-All, we should properly fund existing programs and make them readily available to the disadvantaged folks who truly need them.

History shows that raising taxes on higher earners causes them to change their investment patterns to avoid the increased taxes.

• The personal income tax is now more than 50 percent of state General Fund budget revenue. Eleven percent of California taxpayers pay 73 percent of this tax.
• Proposition 82 will have a significant negative impact on revenues for other important programs such as schools, public safety, transportation, and health care.

SUPPORT AND OPPOSITION

Official ballot arguments in support are signed by: Barbara E. Kerr, President, California Teachers Association; Steve Krull, President, California Police Chiefs Association; Edward Condon, Executive Director, California Head Start Association; Mary Bergan, President, California Federation of Teachers; Shelbi J. Wilson, 2006 California Teacher of the Year; and Robert Black, MD, American Academy of pediatrics, California.

At press time, organizations that have endorsed Proposition 82 include National & California Head Start Associations, California Association for the Education of Young Children, Preschool California, Parents Action for Children, California Association for Family Child Care, Child Development Policy Institute, Children Now, Child Welfare League of America, Kidango Inc., National Association of Social Workers, California Teachers Association (CTA), California Federation of Teachers (CFT), National Association for the Advancement of Colored People, CA (CA-NAACP), National Council of La Raza, United Farm Workers of America, American Academy of Pediatrics California, California School Nurses Organization

Official ballot arguments in opposition are signed by: Dr. Tom Bogetich, Retired Executive Director, California State Board of Education; Pamela Zell Rigg, President, California Montessori Council; Patricia Armanini, Third Grade Teacher, San Rafael; Larry McCarthy, President, California Taxpayers' Association; Thomas L. Sipes, Director, Montessori Schools of Petaluma; and Chris Simmons, 2003 Teacher of the Year, Glendale Unified School District.

At press time, organizations that oppose Proposition 82 include Ameriquest Capital Corp., California Business Properties Association Issues PAC, Chevron Texaco, Small Business Action Committee PAC, California Business Properties Association Issues PAC, California Business PAC, Watson Land Company, State Farm Mutual Automobile Insurance Company, Sobrato Development Companies, Surf Management Inc., Walmart Stores Inc., International Council of Shopping Centers Issues PAC California, The Irvine Company, Prime Property Capital Inc., Cypress Management Company Inc., California Chamber Of Commerce

FOR MORE INFORMATION

Supporters

310-786-7605, Preschool for All, info@yeson82.com, www.yeson82.com

Opponents

916-218-6640, Stop the Reiner Initiative-No on 82, www.NoProp82.org

Web Sources

Analysis by the Legislative Analyst's Office: http://www.lao.ca.gov/ballot_source/Propositions.aspx

Voter Information Guide (ballot pamphlet) in pdf format: http://www.ss.ca.gov/elections/elections_viguide06.htm

Tables in the LAO's ballot pamphlet analysis which will be helpful: http://www.ss.ca.gov/elections/vig_06/vig_pdf/leg_analysis_82.pdf

Reports of campaign expenditures for ballot measures: http://cal-access.ss.ca.gov/Campaign/Measures/