New Budget Center Report Looks at the Impact of Proposition 30

Nearly four years since California voters approved Proposition 30, a new Budget Center Issue Brief  looks at what Prop. 30 has meant for the state’s fiscal picture and investment in key public services. This brief highlights how Prop. 30’s boost to state revenues has helped California reinvest in schools and community colleges and other systems while also increasing the state’s capacity to build its budget reserve and pay down debt.

Passed in November 2012, Prop. 30 raised the personal income tax rates for very-high-income Californians (single filers with taxable incomes above $250,000 and joint filers with incomes above $500,000) through 2018 and raised the state sales tax rate by a quarter-cent through 2016.

Overall, tax rate changes in Prop. 30 have boosted state revenues by $7 billion to $8 billion annually. The effects of Prop. 30 revenues, which predominantly come from California’s wealthiest residents, include the following:

  • Prop. 30 has helped California reinvest in preschool, K-12 schools, and community colleges. Prop. 30 and a growing state economy together boosted Prop. 98 spending (dollars provided through the state’s minimum funding guarantee for preschool, K-12 education, and community colleges) by more than half (52 percent). Prop. 98 spending has increased from $47.2 billion in 2011-12 to $71.9 billion in 2016-17. Due in part to this boost in spending:
    • Prop. 98 K-12 spending per student has gone up from $9,168 in 2012-13 to $10,493 in 2016-17 (inflation-adjusted), an increase of more than 14 percent.
    • The number of K-12 students per teacher in California has decreased, from a ratio of 20.6-to-1 in 2012-13 to 19.9-to-1 in 2014-15, although California still ranks last in the nation on this measure.
  • Prop. 30 has allowed California to begin restoring funding for other public services following several years of cuts. Due to budget shortfalls brought on in part by the Great Recession, California made repeated cuts to key public systems, including state universities and essential health and human services. Prop. 30 revenues helped increase state investment outside of Prop. 98 funding, allowing for some reinvestment in child care, CSU/UC, and other services.
  • Prop. 30 has boosted rainy day fund deposits and repayment of debt. By helping to significantly increase state revenues, Prop. 30 has increased the amount of funds the state is required to set aside for building up its budget reserve and paying down debt.

This brief is the first in a two-part series in which the Budget Center is examining what Prop. 30 has meant for the state and what the impact would be of extending a key component of it (the personal income tax increases on very-high-income Californians), as proposed by Proposition 55 on the November 2016 ballot.

— Steven Bliss