Commentary

Local Governments Need Freedom from State to Innovate


By Joel Fox, principal of Joel Fox Consulting, president of the Small Business Action committee, and former president of the Howard Jarvis Taxpayers Association. He is editor and co-publisher of Fox and Hounds Daily, a website that deals with California politics and business.

For related commentaries and content, please visit our Untangling the State-Local Fiscal Relationship page.


One of the biggest problems in the state-local relationship is that the state does not allow local governments the freedom to innovate in carrying out their duties. We need to create a 21st century government that allows locals to use all kinds of methods and strategies to get the job done.

As former New York Governor Mario Cuomo once said, "It’s not government’s obligation to provide services, but to see that they are provided.”

Local governments should be able to use different and creative methods to run efficiently and economically and get the most for taxpayer dollars.

For example, local government should be able to create their own labor agreements, use public-private partnerships, privatize services, and even use volunteers to fix up schools or other public facilities—arrangements often prohibited by labor laws.

The state’s interference in local activities continues and is made clear by a number of recent legislative actions. Consider a few of the bills passed in the last legislative session in which the power of the state would be imposed on local governments. All but one were signed into law by the governor.

One bill (AB 469)—ultimately vetoed by the governor—set up a series of tests that local governments must follow before a superstore could be placed in a community. Local governments already have the power to set up certain requirements and consider the value of such centers. Citizens can protest and oppose centers. In Suisan City, the mayor faced a recall over the issue. The recall was defeated, but the citizens debated the issue and had their say. The state did not need to be involved.

Another bill (AB 438) sets up hurdles for local governments to choose private companies to run public libraries. Libraries are important learning centers, but their functions will adjust as the dissemination of information continues on the course of rapid change. Like the post office, libraries will have to reconsider the most effective and cost efficient way to operate in the information age.

Much attention was paid to Project Labor Agreements (PLAs), which are often created for local infrastructure projects to discourage non-union labor from participating. Efficiency and tax savings arguments are at the core of this debate. Supporters of the agreements claim they create unified work forces at construction sites and save taxpayers money by using skilled workers. Opponents take a different view, claiming construction costs are higher under PLAs. One recent study found that school construction costs increased 13–15 percent under PLAs.

The point here is that the state wants to tell the local governments how to handle PLAs. Three bills signed by the governor—SB 922, AB 436, and SB 790—all give power to the state over these projects. SB 922 will help override local decisions on PLAs by denying state funds to any projects nullified by local governments.

It should not be surprising that the state wants to dictate to local governments. That situation has occurred since the beginning of California statehood. Framers of California’s first constitution thought local officials would be more likely to oppress the people. The trouble was that legislatures in California’s early days took up so much time with what was termed "special legislation for local governments” that insufficient time was spent on state matters.

As bills mentioned above demonstrate, legislators are still spending too much time trying to dictate to local governments.

Local governments are also responsible for the fiscal crisis that faces jurisdictions especially in the area of pension and benefits costs for their workers. This problem will become greater as time goes on.

The evidence is all around us. Los Angeles city retirement costs, which currently take up more than 10 percent of the budget, are projected to take one-third of the budget by 2015. A grand jury in San Diego said pensions could require half the general fund by 2025. A year ago, a grand jury in San Francisco reported that pension and health care costs would increase from $413 million in the fiscal year to nearly $1 billion in just five years and "threaten to move resources from other needs of the city.”

Clearly, to overcome these barriers and establish more cost-effective governments, a new paradigm must be created for government and its relationship with public sector employees.

Reforms dealing with pension and health care costs are well-known: Caps on employer contributions (perhaps to be put on par with employee contributions), increased employee contributions, 401(k) style pension plans for public sector workers and a myriad of other plans have been suggested. Those who enjoy the current system understandably resist change. However, as the vise continues to squeeze, change must come.

Local governments are already being crunched with the down economy and growing retirement obligations. As noted, projections show that the problem will only become worse.

Here again, the state wants to stick its authority into local business. Because one city chose bankruptcy to deal with its difficult financial problem, state law now undercuts the ability of locals to manage their own affairs when it comes to bankruptcy decisions.

Prohibiting the state government from interfering with local decisions and freeing up local officials’ ability to use all methods to stretch tax dollars would ease both the burden on local governments and the tension between state and local governments.

Local governments should rely on their own workers to suggest ways to deliver city services more efficiently. They know how the system works—or in many cases—how it fails to work.

The California Performance Review in the early years of the Schwarzenegger administration created a number of telephone book-length documents bearing suggestions to improve state government functions. The work was put together mostly by state employees. That model should work on the local level, as well— as long as there is follow-through to implement positive changes. That did not occur with the state project.

The road to many of these reforms goes through a powerful and entrenched special interest in public employee unions. The unions would have to change their positions in many cases, such as on privatization, and be willing to cooperate on efficiency reviews of local governments, come what may. That is asking a lot, particularly of organizations that were formed with the specific goal in mind of protecting and defending their members.

However, the current governance structure is unsustainable. To create a new 21st century governance structure, the unions should take a role before the current system overwhelms them and the taxpayers.

I believe these reforms would reduce the fiscal pressures on local government. I close with a somewhat flippant reference to city government from San Francisco’s 1856 Committee of Vigilance (while in no way endorsing vigilantism). The website of the Museum of the City of San Francisco (http://www.sfmuseum.org/) notes that "with the politicians running the city, the expenditures amounted to $2,646,000. Under a reform management following the work of the Committee of Vigilance of 1856, the city got along in good shape with the expenditure of $353,000.”

It can be done.