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Press Release · January 27, 2003

Lean On Me: California’s Local Governments Rely on State Money More Than Those in Rest of Nation

Budget Crisis Brings Dysfunctional State-Local Fiscal Relationship into Focus

SAN FRANCISCO, California, January 27, 2003 – As California’s cities, counties, and school districts stare into the state’s nearly $35 billion budget hole, a new study released by the Public Policy Institute of California (PPIC) highlights a troublesome reality – local governments here have grown increasingly reliant on state funds to provide critical local services. In fact, as local governments in the rest of the nation became more reliant on self-raised revenues over the past two decades, the trend in California was increasingly toward dependence on the state.

In California, local governments raised and spent 50 percent of their own funds in 1997, down from 58 percent in 1977; during the same time period, that number increased from 57 to 62 percent in the rest of the country. California counties went from raising half of all their own funds to raising only 36 percent, while counties elsewhere in the nation increased their use of self-raised funds from 57 to 70 percent, says the analysis.

The limitations that voters have placed on the ability of local governments to raise money through taxes and other fiscal measures – such as 1978’s Proposition 13 – are the primary reasons why there is more dependence on the state in California than there is elsewhere, according to the study, Fiscal Effects of Voter Approval Requirements on Local Governments. “With limits on property taxes, local governments have had two tough options to pay for services: Go to the state or go to the ballot box to try and pass tax or bond measures – a tricky and historically difficult task,” says PPIC research fellow Kim Rueben, who co-authored the study with research associate Pedro Cerdan.

Of the 2,500 local tax and bond measures California voters were asked to approve between 1986 and 2000, taxes and fees succeeded at a rate of 42 percent while bonds had an only slightly higher passage rate of 48 percent. “Given the uncertain outcome at the ballot box and the record shortfalls the state is facing, local governments will have some tough choices to make,” says Rueben. “This budget crisis will only make the unbalanced fiscal relationship between state and local government in California a far more serious and pressing concern and make local governments increasingly reliant on the ability to pass local measures.”

Other Key Findings

  • Regional patterns: Governments in the Bay Area proposed and passed more ballot measures than elsewhere in the state between 1986 and 2000.
  • Bond-dependent: About one-third of school construction and modernization funds came from local bond measures between 1986 and 2000. Most school districts passed only one bond measure and often returned to the ballot box until successful. Passage rates have dramatically increased in the past two years following a reduction in the required majority for voter approval from two-thirds to 55 percent.
  • Grass is not always greener: Statewide, measures for park and recreation facilities passed least often (34%) while hospital and emergency service measures were among the most successful (49%).
  • The bigger they are the harder they fall: Overall, counties succeeded in passing ballot measures only 32 percent of the time, cities 40 percent of the time, and special districts 47 percent of the time. This pattern may indicate that specific, closer-to-home measures are more palatable to voters.

The Public Policy Institute of California is a private, non-profit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.