Shifting Taxes a Necessary Evil, Wilson Says

Gov. Pete Wilson says his controversial proposal to shift property tax revenues away from local governments is a necessary evil but one that could have the benefit of making local officials more accountable to taxpayers.

Wilson, in an interview with The Times, said his proposal, which would all but force local governments to seek voter approval for higher sales taxes, is preferable to what he says is the only other viable option for balancing the state budget: raising more taxes at the state level.

As lawmakers struggled to craft an alternative to Wilson’s plan, the Republican governor said he sees no reason for the current budget battle to go on much longer.

In the interview Monday night, Wilson deflected questions about the latest twists in budget negotiations. He declined to say how he intends to win support for his proposed budget or what he would do if Republican lawmakers desert him and combine with Democrats to send him a plan he opposes.

“This budget should not take a long time,” Wilson said. After three years of fighting deficits, he said, “We have done the other things that could be done and we’re down to very narrow options. They’re all unpleasant.”

The battle, as Wilson sees it, is between two alternatives: his plan and a rival proposal written by Democratic Assemblyman John Vasconcellos of Santa Clara, chairman of the Legislature’s budget-writing committee.

Wilson’s plan would shift $2.6 billion in property tax revenue from cities, counties and special districts to public education so he could keep a commitment to maintain per-pupil funding for the schools at its current level.

To help local governments withstand the loss of property tax revenue, the governor would extend the state’s half-cent temporary sales tax surcharge for six months and give the revenue--about $700 million--to the counties. In November, county governments could seek the approval of local voters to make the half-cent tax permanent.

Vasconcellos wants to extend the sales tax for three years and keep the revenue it raises in Sacramento, where the money would be used to retire the state’s $2.9-billion deficit and repay loans the state has forced the schools to accept as part of their budget. Vasconcellos proposes a property tax shift about half the size of the one Wilson is advocating.

Both plans include cuts in health and welfare programs, reductions in university funding and suspension or repeal of the renters tax credit.

“There are only three options available to you: the property tax shift, or taxes, which is what Vasconcellos has chosen, or even deeper cuts than anybody wants to make,” Wilson said. “So I think effectively you’ve got two options.”

To date, neither plan has sufficient support to obtain the two-thirds majority needed to pass a budget in each house of the Legislature.

Wilson’s proposal, because of its larger property tax shift, has offended the governor’s usual allies in law enforcement and the business community. Sheriffs and district attorneys have complained that the cuts in county budgets would hamper their ability to fight crime. Business groups say the tax shift would give local governments less incentive to approve new residential and industrial development.

The governor concedes that the tax transfer has few fans.

“I don’t like the shift,” he said. “I hate it. I fought it last year. But there are no other ways to do it.”

Wilson argues that his proposed policy, taken as a whole, would increase accountability at the local level. He wants to repeal virtually every state-ordered local program except those related to law enforcement. This would free cities and counties to set their own priorities, he says.

Under current law, he points out, counties cannot cut welfare aid to able-bodied adults below state-determined levels and shift the money to the sheriff’s department.

“It makes sense that local officials, who know better the priorities of their own communities, ought to set their own priorities locally,” Wilson said. “Los Angeles is not Lodi.”

Wilson acknowledges that under his scenario, county governments would have an incentive to keep their tax rates low--to compete with neighboring jurisdictions--and their social services spare, for fear of becoming a magnet attracting the poor from other regions.

“If they have the authority to set (the tax rate) themselves, county by county, they are going to first be guided by their own priorities, and second, they probably will be guided by what their neighbors are doing,” he said.

Wilson is by no means the only state figure calling for a reorganization of government finance and obligations. Several state lawmakers, as well as the Legislature’s nonpartisan analyst, are calling for a long-term overhaul of the system. But Wilson says there is not enough time before the July 1 start of the next fiscal year for a complete review. He sees his proposal as a first step with more action to come next year.

Like others looking at the issue, Wilson is responding to the long-term fallout from Proposition 13, the landmark 1978 ballot initiative that slashed property taxes and capped them at 1% of assessed valuation. When the state bailed out local governments to help them survive the loss of property tax revenue, the unintended consequence was to shift control over local finances to the state capital.

“What people did not vote for, when they voted to cap the property tax, was to transfer the power of the purse to Sacramento, away from local government,” Wilson said.

“We used to have accountability in the form of local elected officials having to justify to local taxpayers the costs they were asking them to pay for. You can’t have fiscal accountability where you totally divorce the spending of money and the raising of money.”

Wilson acknowledged that extending the sales tax at the state level and reducing the property tax shift might be the political “path of least resistance.” But he said the sales tax surcharge was meant to be temporary and should remain so. The local revenue-raising authority he is urging counties to employ was adopted with the temporary sales tax in 1991 and designed to go into effect when the state tax expired.

“They (counties) have said, ‘Give us local revenue-raising authority. We don’t want to be dependent on Sacramento. Free us from the mandates that cause us to spend money on things you think are important rather than what we think are important.’ I say they’re right.

“This is a classic case of be careful what you ask for because you may get it.”