Barring a vote of the people of California or a legislative Hail Mary, San Francisco figures to get a $200 to $250 million “windfall” every year now


Update: Compromise reached in “windfall” spending — see end

When Jed Clampett discovered oil on his property, he moved the family to Beverly Hills and lived happily with his newfound wealth.

And yet, most tales of unanticipated riches, like The Pearl, take a more malevolent turn, with the recipients of windfall funds turning against one another and ending up worse off for their wealth.

San Francisco, it seems, will fall somewhere between these extremes. The $185.4 million in “windfall” funds unearthed late last year from the “Educational Revenue Augmentation Fund” (ERAF) by the city controller will, undoubtedly, be put to good use. But just who is helped — and who is not, or who is helped more and sooner  — is a matter of some contention.

Mayor London Breed, in a savvy political move for someone who loudly opposed November’s Prop. C homeless measure, wants all of these funds to go to the homeless. Among elected officials, however, this is a lonely view. Members of the Board of Supervisors have eyes on a number of additional priorities, including teacher salaries, early childhood education, or buying utilities out from under PG&E.

This debate, which may be decided by Wednesday’s vote in the Budget Committee, has turned fraught; these funds have been portrayed as a one-time golden ticket descending from the sky, and everyone and their special-interest group wants their shot at it.  

But is this really “windfall” money? And are these really “educational” funds?

The answer to both is no.

Photo by Jennifer Cortez

First, the facts: Barring unforeseen lunacy, San Francisco will be the recipient of a “windfall” of between $200 and $250 million next year. After set-asides, the city is looking at between $160 million and $180 million in discretionary funding from that money. And, barring unforeseen lunacy, this will be the case not only next year but the year after that and the year after that. Because this is, in fact, not a golden ticket from the sky. It’s tax money from San Franciscans placed into a fund administered by San Francisco.

As George W. Bush put it, “It’s your money. You paid for it.”

In 1992, during lean times, the state of California devised a method to fund its schools even less while, in effect, taking money away from its cities and counties. In a great and terrible bit of Orwellian branding, it called the method of accomplishing both of the above the “Educational Revenue Augmentation Fund.”

Since the state is not permitted to simply yank away county property taxes, it created a shell game to accomplish the same end. It established this “Augmentation Fund” in every county, requiring counties to pay into it and disseminate the money to school districts. Subsequently, state funding of schools was reduced by an equivalent amount.

See what they did there? That was a pretty neat trick. School funding, naturally, wasn’t augmented at all.

In the late 1990s, additional state rules clarified that if a county collected more in its Educational Revenue Augmentation Fund fund than a state-imposed cap, the additional funds would be returned to the counties. This is what’s happening in San Francisco now. The Educational Revenue Augmentation Fund exceeded its cap last year and will continue to do so for the foreseeable future.

Already, the Augmentation Funds have exceeded their caps in counties like Marin, Mono, Napa, San Mateo, and Santa Clara (where, for the most part, property tax revenue is surging and school enrollment is not). San Mateo, in fact, codified level-headed policies for spending ERAF funds all the way back in 2011; this need not be a melodramatic yearly battle royale.

Because these excess dollars are, by no means, being yanked away from schools. San Francisco may yet choose to fund teachers with them because that’s a prudent thing to do, but these are, by no means, “educational funds.”

The pitting of the homeless vs. educators is an unfortunate byproduct of jostling over the $185 million in “windfall” funding. Photo by Lola M. Chavez

And this is, again — by no means — a “windfall.” Even fiscally cautious observers admit that San Francisco’s soaring property tax revenue (up 22 percent in the last two years alone) and stagnant public school enrollment mean this will likely happen again and again — “barring state action.”

The optics of some of the state’s wealthiest counties receiving hefty amounts of money may not be well-taken at the statewide level. This is, in fact, our own money granted back to us after the city maxed out its state-mandated educational contribution, and our swelling property taxes actually reduced the amount of direct state aid to San Francisco schools — but optics are optics.

Yet if the state decides it wants this money, or simply doesn’t want San Francisco to have it, what would “state action” even look like?

Well, city sources say, it might require the Democratic supermajority Legislature to make a move. It would require this happening over the objections of Assemblyman David Chiu, Sen. Scott Wiener, Assemblyman Phil Ting — not insignificantly, the budget chair — and, of course, Gov. Gavin Newsom. And this money grab would supposedly be happening while the state is enjoying a multi-billion dollar surplus.

That seems unlikely. But, according to the California Legislative Analyst’s Office, it’s actually even more unlikely.   

Ken Kapphahn, a fiscal and policy analyst for the LAO, says that if the state wanted to “play around the edges” on reducing the Educational Revenue Augmentation Funds for San Francisco and other counties, it could still, possibly, be done legislatively — though Kapphahn acknowledges all the factors listed above would render this unlikely.  

And yet, he continues, California Proposition 1A of 2004 severely limited the state’s ability to redirect the allocations of local property taxes. So, “for wholesale change” of the sort that would be needed to really undo San Francisco’s ongoing “windfall,” this “might need to go back to a vote of the people.”

That certainly seems far-fetched.

For good or ill — mostly good — San Francisco is going to have to learn to deal with the ongoing situation of a hefty new funding source coming its way yearly. Both the mayor’s office and the Board of Supervisors desperately want to get this year’s “windfall” accounted for before negotiating no fewer than 29 open union contracts. But the unions, no dummies, know this money is coming back, no matter how much our elected officials prevaricate. And they want some.

“Every time we go into negotiations, the city cries poor,” says John Stead-Mendez, the executive director of SEIU Local 1021, the city’s largest union. Referring to this revenue source as a “windfall” is untrue, he says, and plays into that.

But he’s already thinking bigger.

“I can remember the last administration [crying poor] in 2014 and, since then, revenue has grown by $2 billion. … This is one revenue source among many.”

Update, 4:48 p.m.: Supervisor Gordon Mar today announced a compromise on how to spend the “windfall” funds that may make tomorrow’s vote far less contentious — and diffuse a potential hours-long, acrimonious public comment period pitting unionized teachers against other underfunded groups and their representatives.

Mar’s Tuesday afternoon announcement did not go into detail, but Mission Local has learned it involves the creation of a fund that can be accessed by either the Board of Supervisors or San Francisco Unified School District drawn from $52 million in excess Educational Revenue Augmentation Fund money already placed in  “rainy day” reserves.

These were the “one-time” contributions placed in the rainy day fund, per city law requiring such a move following a first instance of explosive revenue growth.

In the event Prop. G — which would establish a parcel tax funding teacher raises — isn’t clear of legal hurdles by 2020-21, this funding source could be tapped. Future ERAF “windfalls” — which figure to come yearly now, as noted above — could also be directed to teacher salaries. If unused, the fund could be redirected back into the rainy day reserves.

Mission Local is told that this solution, which guarantees teacher raises through the duration of their current contract, has met the satisfaction of the teachers’ union and has been approved by competing factions of progressive supervisors, who had been at odds regarding what percentage of ERAF funding should go to teachers. With the approval Wednesday of eight supervisors, the board would establish a veto-proof majority — Mayor London Breed has made it clear she desires all the funds go to the homeless.