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To Ease the Crisis at the Local Level, New Thinking is Necessary

By Courtni Sunjoo Pugh, special assistant to the executive director for SEIU Local 99.

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

Local governments throughout the state face ongoing fiscal crises caused by the state’s budget shortfalls, constraints placed on revenue by various ballot measures, supermajority voting requirements, hyper-partisanship, and other factors.

During times of fiscal hardship the relationship between the state and local governments—rather than being a symbiotic connection that helps both—is parasitic. The state cannibalizes local revenue streams while preventing localities from raising more.

For a number of years—this year being the exception—the state’s fiscal crises and supermajority voting requirements have prevented passing a balanced budget on time. Passing a budget at all has often meant employing gimmicks that relied on fund shifts—borrowing from local governments to fill state budget gaps—much to the dismay of local officials and school districts.

For example, rather than raise revenues to cover the state’s shortfall, the 2008-09 and 2009-10 budgets signed by Governor Schwarzenegger simply shifted and borrowed money from local governments as if they were the state’s piggy bank.

Further challenging the fiscal relationship between the state and local governments are the countless ballot measures that limit the ability of localities to raise or spend revenues.

Popularly known as "budgeting from the ballot box,” these measures create various obstacles. The passage of Proposition 13 in 1978 limited property taxes. Proposition 62—passed in 1986—tightened requirements to raise local general taxes. In 1996, Proposition 218 limited local governments’ ability to impose taxes and property assessments. In 2004, Proposition 1A protected local government revenues from reduction by the state. Proposition 26 expanded the definition of "taxes” in 2010.

Of those measures, the seemingly insurmountable obstacle—Proposition 13—is worth singling out. Revered by some and despised by others, it has such an effect on elected officials and voters that the mere mention of it provokes an emotional reaction.

Passed during Governor Brown’s first term, Proposition 13 makes the state legislature responsible for dividing property taxes among local entities and requires a two-thirds vote to increase such taxes.

Over the years, many have called for a suspension or repeal of Proposition 13. Just this year, the Sacramento Bee reported that Los Angeles Mayor Antonio Villaraigosa called for "taxing commercial property at higher levels, while lowering taxes on homes. The [mayor] said lawmakers, school districts and local governments should be able to raise taxes on a majority vote, rather than the two-thirds supermajority required by Proposition 13.”

The mayor clearly understands that something has to be done to preserve, protect, and defend the city’s valuable public services rather than relying on dwindling financial resources from the state or reducing and eliminating public programs and services. Los Angeles is not alone in its fiscal struggles. Other cities and counties throughout the state are facing significant shortfalls.

For local governments, the road to solutions is fraught with obstacles. For most local agencies, levying a tax for general purposes requires a two-thirds vote of its governing body and a majority vote of the electorate. A tax for specific purposes also requires a two-thirds vote of the governing body and a two-thirds requirement by the electorate. If the tax is a property assessment, a majority vote is required by the governing body and the electorate. A fee increase requires only a majority vote of the governing body. The system is not designed to be user-friendly.

Without a supermajority of either major party in the legislature or at the local government level, the likelihood of achieving the necessary thresholds is small, especially in a political environment where many elected officials hold fast to the notion that any tax increase must be opposed.

Reducing voting thresholds for local governments to raise needed revenues is one possible solution. Another, offered by Senate President pro Tem Darrell Steinberg, would have authorized the governing bodies of local governments—including school districts, county offices of education, and community college districts—to levy or increase the local personal income tax, local vehicle license fee, an additional transactions and use tax, and excise taxes on alcohol, cigarette, and tobacco products, oil severance, sweetened beverages, and marijuana.

Eliminating supermajority voting requirements and extending more authority to local governments and local school districts to pursue other avenues of finance would allow many local governments to help reduce or mitigate the detrimental effects of the current fiscal crisis and prepare for the next economic downturn.

Another potential solution is "realignment.” This year the governor enacted the first phase of realignment of specific state services. In this phase, certain services that have been performed by the state will become the responsibility of local governments. An existing source of revenues will be diverted to local governments to take on this burden.

Realignment is a move in the right direction for some programs, as it would ease a burden on the state and could ease fiscal tension between state and local governments. It is likely that many local governments, service providers, and recipients would like to see the sources of these revenues protected.

Given the severity of the fiscal crisis at the local government level, Proposition 13 should be revisited and realignment must be pursued in a thoughtful, equitable manner. It is time for elected officials, including the governor and legislature, to come out of their political comfort zones and, like the mayor of Los Angeles, take a serious look at solutions based not on stale ideologies but on what is right for California.

The ongoing fiscal crisis has placed severe strains on our institutions of governance, just as it has pushed working families to the limit. Only new thinking, coupled with an enduring commitment to a well-functioning government and a robust middle class, will get us out of this current crisis and on a path to a sustainable future.