San Francisco breathes a potential $180 million sigh of relief
After an agonizing weeks-long period that one San Francisco official confided “is literally killing me,” a prospective deal has been reached that will prevent the state from retroactively clawing back hundreds of millions of dollars in funds from this and other counties.
At issue here are “Educational Revenue Augmentation Funds” (ERAF). Under a proposal written into a lengthy state omnibus trailer bill, some $180 million would’ve been pulled away from San Francisco, dating back to 2018, with an additional $60 million yearly diverted from this county to the state every year moving forward.
This proposal would also have gravely affected Santa Clara, San Mateo, Marin and Napa counties along with San Francisco, eviscerating local budgets on the cusp of the already grim shortfalls due to the coronavirus pandemic.
Mission Local is informed that Sen. Toni Atkins (D-San Diego) was the driving force behind the deal to stave this off, with aid provided by multiple Bay Area legislators, including Sen. Scott Wiener and Assemblyman David Chiu. Legislators are slated to vote on the matter (and much more) on Friday. This matter, tucked into a budget trailer bill, is expected to pass handily.
“The original proposal was incredibly punitive toward San Francisco and would have badly harmed our already precarious local budget,” said Wiener. “The changes, while not perfect, are much less problematic. I’m confident we will fully resolve the issue moving forward.”
These are the same funds that, in 2019, were erroneously referred to as a “windfall;” after some high-level political jousting, the mayor and Board of Supervisors opted to spend $185 million of them on teacher salaries, homeless services, affordable housing, and other benevolent causes.
ERAF money is generated in counties such as San Francisco with stagnant school enrollment and skyrocketing property taxes. With that scenario locked in for the foreseeable future, even level-headed and prudent fiscal analysts last year predicted hundreds of millions of dollars in ERAF “windfalls” were being generated in San Francisco each year — with the significant caveat that this could be altered via “state action.”
That action came, but not in a manner anyone predicted — and with consequences more severe than anyone foresaw.
The earlier language in the Education Omnibus Trailer Bill would have wrested responsibility for determining each of the 58 counties’ ERAF allocations away from the state controller and given it to the Department of Finance.
It was under the state controller’s system that San Francisco last year was determined to have amassed “excess” ERAF money, and was entitled to reallocate it to other causes. This has occurred in several counties throughout the state in recent years; in 2011, San Mateo went so far as codifying policy on how to spend excess ERAF dollars, staving off political brawls of the sort that occurred in San Francisco last year.
The state Department of Finance, using a different methodology than the state controller, claimed San Francisco and other counties owed more money, and would’ve attempted to wrest back these funds going back to 2018. It would have additionally punished counties that failed to pay up with civil penalties of 10 percent per year, in addition to 1.5 percent monthly — an annual aggregate interest of 28 percent.
This was seen by the affected counties as a usurious money-grab — and a tremendous potential penalty in the event of unsuccessful litigation against the state.
Under the new proposed legislation, the retroactive element has been partially eliminated — a possible $180 million sigh of relief for San Francisco.
“Certain state officials wanted to yank that away from us, even after we already used it to meet critical needs in our city,” said Chiu. “It was a very intense conversation, and I am relieved.”
Mission Local is informed that funds will not be clawed back from fiscal year 2018-19. But fiscal 2019-20 is still in play, albeit with parameters.
But, perhaps most crucially, decision-making moving forward will rest with the state’s controller, not its Department of Finance, says San Francisco controller Ben Rosenfield. The state controller, he continues, is a more nonpartisan body — and not responsible for balancing the state budget, as the Department of Finance is.
“This deal eliminates the punitive prospect of civil penalties and retroactive payments,” said David Campos, a former Mission District supervisor who is now Santa Clara’s deputy county executive.
“It develops a fair process, led by the duly elected State Controller, for the impacted counties and the Department of Finance to make their case about the allocation of excess ERAF.”’
Campos’ successor, Supervisor Hillary Ronen, this month introduced a Board of Supervisors resolution with Supervisor Matt Haney urging the state to not grab this money.
“It’s going to be hard enough to fill a $1.7 billion hole in our budget. Facing the prospect of a larger deficit because the state planned to address its problems on our back was infuriating,” she said.
“I appreciate the leaders who stood up for San Francisco.”