Impacts of Re-Directing Excess ERAF from Counties
Background
The California Constitution requires the State to guarantee that schools receive a certain minimum level of funding. In 1992, to reduce the impact of this mandate on the State general fund, the State required each county to establish an Educational Revenue Augmentation Fund (ERAF) where local property tax dollars are taken from the county, cities, and special districts, deposited in ERAF, and used to bring school districts up to their minimum funding levels. Importantly, despite its name, ERAF does not increase school funding—it merely offsets the State’s school funding obligations, dollar-for-dollar. When more local property tax revenue is diverted to ERAF than is needed to meet school districts’ minimum funding needs, that revenue is deemed “excess ERAF” and returned to the county, cities, and special districts whose taxes were diverted to ERAF.
Charter School Funding
Charter schools also have minimum funding guarantees, but they do not receive ERAF. 1 Instead, they receive “in lieu” payments from their host school district. If the in lieu payment is not enough to meet the charter school’s minimum funding level, the State makes up the difference.
Problem
Over the past few years, the California Department of Finance (DOF) has attempted to shift excess ERAF away from local governments to help balance the State budget. One of DOF’s recent efforts was to assert, without any legal basis, that charter schools receive ERAF. DOF even supported the California School Boards Association’s unsuccessful lawsuit challenging the State Controller’s determination that charter schools do not receive ERAF. DOF’s response to that judicial defeat is to propose unconstitutional budget legislation that would give charter schools ERAF, thereby shifting funds away from local governments.
DOF’s proposal is also unconstitutional because Article XIII, § 25.5(a) restricts the State’s authority to use or redirect local property taxes from counties, cities and special districts. But DOF seems undeterred by this inconvenient fact.
What does this mean for Santa Clara County?
The estimated impact of diverting excess ERAF away from local governments is over $36 million for the County and $11 million for our 15 cities and 11 special districts in FY24-25.
What would this impact?
Excess ERAF has allowed the County to strengthen our safety net and protect our most vulnerable community members. Losing these local property tax dollars would put critical safety net services—such as behavioral health care, supportive housing, and health services for children and families—at significant risk.
Contact
David Campos, Deputy County Executive
Funding At Risk for Santa Clara County Communities
| Annual Revenue Loss | |
|---|---|
| County of Santa Clara | $36 M |
| 15 Cities | $8.9 M |
| 11 Special Districts | $2.2 M |
| Total Revenue Loss | $47.1 M |
1 California School Bds. Ass’n v. Cohen, 2023 WL 4853693 (3rd Dist. Court of Appeal, unpublished) (“CSBA”). Although the appellate decision is unpublished, it constitutes a final judicial determination that charter schools do not receive ERAF.