You’ve Been Schooled

Think you have all the answers on how our Manhattan Beach public schools are funded? A valuable lesson on a complicated process turned up some surprising results.

Written by Michele Garber

It is often said that perception is reality. Yet in our social media-driven culture misinformation abounds, falsehoods spread like wildfire and many perceived notions are often proven to be untrue.

Case in point: Consider the outstanding school system in Manhattan Beach. Conventional wisdom suggests that the quality of schools in a neighborhood like MB is largely due to its affluence. This type of erroneous assumption is exacerbated when demographic studies support a link between affluence and school performance.

To be sure, wealthy neighborhoods do tend to have better performing schools, while lower-income neighborhoods often have sub-par or failing schools. Yet the correlation between wealth and school performance may not actually be due to the reasons one most often presumes.

When asked, many people conclude that schools like those in the Manhattan Beach Unified School District (MBUSD) outperform their counterparts because the area is wealthy and thus receives greater education funding. But that conclusion stems from a completely faulty premise and is therefore intrinsically flawed.

Yes, wealthy neighborhoods by definition have higher property values. Correspondingly, residents in these neighborhoods pay substantially higher property taxes. And property taxes in most states—including California—are a primary source of education funding.

The flaw lies in the assumption that property tax revenues remain in the school district where they were collected. Subsequently, people assume that affluent school districts like MBUSD are flush with cash and that all that cash begets better school performance.

It is true that funding levels customarily have an impact on the performance outcomes of schools, although empirical data on occasion contradicts that correlation. For example, the U.S. spends far more per pupil than most Westernized countries yet lags behind in several meaningful indicators of education outcomes. Still, in general it is safe to conclude that increased funds will affect performance by boosting scholastic resources.

 

“An investment in knowledge pays the best interest.” Benjamin Franklin

 

The irony is that, in California, wealthier school districts often receive the lowest revenues, while lower-income districts routinely receive the highest funding levels. California’s education funds derived from property taxes are redistributed across the state and, with few exceptions, do not stay in the district where the revenue is generated.

So a district like MBUSD with high property taxes based on high real estate values actually receives less education funding than just about any other district statewide. Wait … what?

If you are wondering why those tax revenues do not stay in their districts—or where the funds go, or how they get allocated—you’re not alone. To fully unravel the circuitous route on which education funds travel, we need go back nearly five decades.

Prior to 1970 California school districts set their own property tax levels to fund local education. This led to enormous disparities in school funding between wealthy and poor neighborhoods. The question of access to education based on wealth became the hot-button issue of the day.

In 1971 the California Supreme Court ruled in favor of Serrano v. Priest under the Equal Protection Clause of both the California Constitution and the U.S. Constitution. In an effort to dilute disparities between the educational opportunities in high- and low-income neighborhoods, the court placed a ceiling on revenues for school districts, thus in theory equalizing revenues across all California school districts.

Regrettably this ruling did little to fix the problem, as strong-willed districts found a way to circumvent revenue limits by passing local referenda. Property taxes continued to rise, while the chasm between high- and low-income school districts continued to widen.

In 1978 the burden of high property taxes reached critical mass. California voters passed Proposition 13, which capped property tax assessed values at 1% and annual increases at 2%, and required a 2/3 majority vote to pass any further increases.

 

 

While Prop 13 stabilized the housing market, it left in its wake a profound and lasting impact on California public education and its funding. As a result of Prop 13, state property tax revenues fell 57% and control of apportioning those property tax funds shifted from local districts to Sacramento.

To determine how these funds would be allocated, a formula was created based on the education spending levels in 1972 (the year after the Serrano ruling). At that time Manhattan Beach was a K-8 district and spent only about 20% of collected property taxes on its schools. MBUSD was designated a Revenue Limit District and thus does not retain its property taxes.

Meanwhile a district like Palo Alto—where larger sums of property taxes were used for school funding—was designated a Basic Aid District. That meant it was able to keep its excess property taxes.

The semantics of these designations are confusing. “Revenue Limit” sounds as though the district keeps its money, while “Basic Aid” sounds as though the district is underserved and thus needs extra state funding … when, in reality, just the opposite is true. To add to confusion, there was a complicated web of ways schools could increase funding based on categorical needs, and this often resulted in further inequities between districts.

Then in 2013 California Legislature passed the Local Control Funding Formula (LCFF) in an effort to simplify how tax revenues are distributed to local school districts to fund public education. LCFF also returns discretionary control of how to spend education funds to the district level.

LCFF is the first major change to how California manages and funds its education system in nearly four decades. It replaces the former spending system of categorical spending, revenue limits and basic aid with a per-student base grant supplemented by the state to cover students with “higher” funding needs.

Essentially, every district receives the same per-pupil funding based on average daily attendance. Then districts that have students with higher needs receive additional funding. The three categories of students in need of extra funding are English learners, students who qualify for reduced or free lunch and students in foster care.

MBUSD has the lowest percentage of students who qualify for additional funding out of all school districts in California. Thus MBUSD receives the lowest level of per-pupil education funding statewide. Factor in the fact that California ranks 44th in per-pupil funding and 50th in student-to-teacher and student-to-counselor ratios in the U.S., and MBUSD’s funding issues are magnified.

One major solution many districts throughout California found to supplement gaps in public school funding was to pass parcel taxes. These taxes can be difficult to pass because they assess the tax not on the value of the property or its use, but on a flat fee basis. In addition they require a 66% super majority to pass.

One of the benefits of a parcel tax is that most communities vote for a parcel tax with a senior citizen exemption, so that retirees on fixed incomes will not be negatively impacted by them.

In addition, they accomplish their goal of fundraising—bringing in much-needed extra monies to enhance local education. In districts like Palos Verdes, Palo Alto and San Marino, parcel taxes represent 7%, 8% and 11% of the districts’ budgets respectively. Piedmont, California’s parcel tax makes up an astounding 28% of their district’s budget.

Manhattan Beach is one of the only top-performing school districts statewide that does not have a parcel tax. According to the LA Times, Manhattan Beach is 79th out of 88 on a list of municipalities in LA County ranked by their effective property tax rates in descending order. Though property taxes in Manhattan Beach are high due to property values, the MB effective property tax rate is a remarkably low 1.059263%, which is largely due to not having parcel taxes and other funding assessments. MBUSD derives its revenues from state funding as well as local sales, business and income taxes.

Meanwhile, back to Prop 13. Following its passage, California school districts—faced with severe budget cuts—were forced to make excruciating choices and eliminate beloved programs deemed less necessary. Many teacher, counselor and staff positions were cut; class sizes increased adversely, affecting the quality of instruction; and resources were severely scaled back.

These changes did not sit well with parents and teachers. Unwilling to accept the new normal, many sought to find their own solutions to protect the quality of their children’s education. Fortunately, as is so often the case, challenging times spur innovative solutions.

One notable positive response to post-Prop 13 draconian funding cuts was the advent of education foundations, along with the rise of other volunteer support organizations such as booster clubs. These philanthropic organizations rose to the occasion and began filling in the gaps and repairing the damage of cutbacks in school programs.

Over the past four decades the number and influence of support organizations has risen steadily throughout California. In 1990 there were just 278 education foundations. By 2011 that number grew to 920.

Manhattan Beach is fortunate to have one of the most successful and prominent education foundations in all of California, if not the U.S. Founded in 1983, the Manhattan Beach Education Foundation (MBEF) was one of California’s earliest education foundations established to supplement the shortfall of funding created in response to Prop 13 funding cuts. MBEF is a 501(c)(3) tax-exempt, nonprofit, fundraising organization that gives parents and the community at large an opportunity to invest in their local public education.

In its early years MBEF stepped in to provide supplemental funds to enhance arts and music—some of the first programs negatively affected by budget cuts. At first MBEF grants were humble, amounting to just a few thousand dollars. As the needs of MBUSD grew, the role of MBEF grew in tandem.

 

“Some of our biggest donors are people whose kids have already matriculated out of our schools. But these donors recognize the longer-term benefits of the endowment. Though their kids are grown and gone, they are still part of our community and they realize what an asset The MBEF Endowment is to our community.

 

Grants from MBEF to MBUSD now represent nearly 10% of the district’s annual budget and have grown exponentially from just a few thousand dollars to multi-millions of dollars annually. In the 2016/2017 school year MBEF disbursed $5.8 million in grants to the district.

These vital funds pay for 71 educators including teachers, librarians, college and career counselors, as well as guidance and support counselors. They help keep class sizes at appropriate levels.

Grants fund professional development for teachers—an essential tool to continuing best practices in evolving educational techniques. In 2015/2016 MBEF funded the professional development of 61% of MBUSD instructors.

MBEF funding provides stipends for the Teacher of the Year at each of the seven school sites. MBEF grants supplement STEM programs and fund 44% of MBUSD’s K-12 music programs. MBEF also funds electives and extra period classes and does so much more for MBUSD.

MBEF support of MBUSD is clearly working. By any measure traditionally used to evaluate the quality of a school district, MBUSD consistently excels. They have high graduation rates, high test scores, strong college preparedness, math and English proficiency, and high AP participation, test and passing rates.

Mira Costa High School is reliably ranked in the top 1% of U.S. public high schools by both Newsweek and U.S. News & World Report and earned a Gold Medal for 2017 by U.S. News & World Report. MBUSD schools have been designated Distinguished, Gold and Green Ribbon Schools by the California Department of Education and Blue Ribbon Schools by the U.S. Department of Education.
The vital annual grants that MBEF provides to MBUSD to ensure its continued success are derived from two primary fundraising sources: its annual appeal, which takes place beginning in autumn and runs through January, and its legendary Wine Auction, which happens every June. The annual funds that MBEF raises for the district are essential, yet they are also susceptible to fluctuations in the economy and the financial stability of residents.

 

 

Auspiciously a group of early MBEF supporters realized the best way to support and protect the school district was to establish a permanent and stable funding source for MBEF. The group noted that every year MBEF would meet its fundraising goals, but after making its annual gift to MBUSD the funds were exhausted and they would have to begin fundraising all over again. They wanted to create a more permanent funding source.

So in 1986 this group of forward-thinking MBEF supporters founded The MBEF Endowment, a separate 501(c)(3) organization with the sole mission of providing a sustainable and enduring funding source to MBEF. Manhattan Beach was one of the first communities in the U.S. to establish a permanent private funding source for its schools.

Modeled after the endowments of universities such as Harvard and Stanford, the endowment began with just $10,000 in principal funds. Contributions, sound investing and the magic of compounding over the years allowed the endowment to multiply. By 2014 the endowment surpassed $10 million, enabling it to make its first distribution of $116,000 to MBEF.

The endowment recently crossed the $15 million mark. It took 27 years to reach the $10 million mark and less than four years to reach its current level. At more than $15 million, the 2017/2018 disbursement to MBEF will be more than $500,000.

But The MBEF Endowment has a loftier goal: reaching $20 million by 2020. If the organization meets this goal—and it is certainly on track to do so—the endowment, which is allowed to disburse up to 5% of its value each year, could ostensibly disburse up to $1 million annually in perpetuity to MBEF. These disbursements will be impervious to economic fluctuations or budgetary instability from the state’s public school funding.

Just think about that: $20 million dollars by 2020. It is indeed a lofty goal. Reaching it will take tremendous financial support from an already extremely generous community. Manhattan Beach is one of the most giving and active communities, especially when it comes to supporting its school system.

But even the most generous people can burn out when asked repeatedly to open their checkbooks. And it can get a bit confusing to discern how these interrelated organizations differ. If someone supports the wine auction and has made direct donations to MBEF, the delineation between the education foundation, the wine auction fundraising event and the endowment may blur.

And then there is the adage that charity begins at home. As Mike Duckworth, president of The MBEF Endowment, says, “People are often concerned about ‘my kid now.’ If they are donating, they naturally want to know how it will impact their family directly.”

When MBEF supporters are collecting for the endowment, which is a long-term investment in the education of future generations, it’s not as easy to get people onboard. This was especially tough in the first two decades when monies went into the endowment to build principal and could not be touched.

But the long-term investment of the endowment benefits everyone, especially in a neighborhood where real estate values are so entwined with the quality of the school district. Not to mention, supporting the endowment is just a smart (and right) thing to do.

Mike goes on to explain, “Thirty years ago, a group of visionaries wanted to do something spectacular. With great foresight, they worked really hard to build this tremendous asset for the community. It is now our responsibility as a community to continue this legacy.”

He continues, “Some of our biggest donors are people whose kids have already matriculated out of our schools. But these donors recognize the longer-term benefits of the endowment. Though their kids are grown and gone, they are still part of our community and they realize what an asset The MBEF Endowment is to our community. The role of MBEF is to support MBUSD so every child in the district has excellent educational opportunities. MBEF bases its grants on the needs the parents, schools and community have expressed. It is the liaison between the schools and the community. If the community wants something from the schools, MBEF can work with them to make it happen. Per the mission statement, MBEF funds programs that inspire learning, enrich teaching and promote innovation and academic excellence in the public schools of Manhattan Beach.”

Each June MBEF hosts its illustrious Manhattan Wine Auction. Now in its 23rd year, the Wine Auction is MBEF’s annual fundraiser to support MBUSD. This year’s Wine Auction will take place June 3 at Manhattan Country Club. The event has become so popular within the community that general admission tickets sell out within a day.

Since its inception in 1994, the Wine Auction has become the largest charity wine auction in Southern California. With each subsequent year, the auction has raised impressive funds for MBUSD. In 2016 net proceeds of the Wine Auction exceeded $1.1 million. It’s anticipated that 2017’s auction will raise even more.

As Mike Duckworth muses—only somewhat jestingly, “My vision is that in 30 years the MBEF Endowment will exceed $100 million, and will be able to provide a significant source of funding—perhaps even replace MBEF as the main source of funding—for MBUSD.”