A Cap-Gun Approach to Cities’ Budget Blues

After more than two decades of bizarre distortions induced by Proposition 13, the idea of reforming California’s state and local fiscal system is back on the table in Sacramento. A slew of proposals has come forth from committees and commissions throughout the state, including one sponsored by Assembly Speaker Antonio R. Villaraigosa (D-L.A.).

It’s admirable that politicians like Villaraigosa and his designated successor, Robert M. Hertzberg (D-Van Nuys), are showing an interest in such a tangled and arcane topic. But it’s unlikely that the proposals they are pushing will make much of a difference, even if they pass the Legislature this year. Though creative, the ideas represent only cap-gun solutions that don’t measure up to the rhetoric of their sponsors. Unfortunately, on the fiscal issue, Sacramento’s leaders are speaking loudly and carrying a puny stick.

The fiscal relationship between state government and local agencies such as cities, counties and school districts is a topic usually consigned to public-administration courses. But few issues that Sacramento deals with have such a direct impact on the daily life of California’s 34 million residents. Schools, crime fighting, road maintenance, health and welfare and a host of other services that Californians use every day are provided by local governments.

Yet, ever since Proposition 13, cities and counties have steadily lost control of their revenue sources chiefly because the famous “people’s initiative” inadvertently placed the power to divvy up property taxes into the hands of the governor and the Legislature. Local governments must provide services to residents down the street and answer to them every week at meetings of city councils and boards of supervisors, but they don’t make many of the most important decisions about how much money they get from their communities.

The locals have been particularly agitated since the recessionary early 1990s, when then-Gov. Pete Wilson balanced the state budget on their backs by taking a couple of billion dollars in property-tax revenue away from them--and never gave it back. This revenue shift, like Proposition 13, eroded their property-tax base and made sales tax more important, thus encouraging local governments to engage in “retail wars” to attract big-box retailers and auto dealerships.

This year, Villaraigosa and state Controller Kathleen Connell are backing different approaches to the problem. Villaraigosa’s plan would take a half penny in sales-tax revenue away from local governments and give it to the state but return to locals an equivalent amount of property-tax revenue. Connell’s bolder idea is to pool all the growth in sales tax in the state, then distribute it on the basis of population, rather than where the retail transactions took place.

Because Villaraigosa’s plan is more modest and because he is a powerful legislator, whereas Connell heads a state department, his idea will likely get more attention in the Legislature. In particular, it’s more acceptable to the state’s 470 or so cities, which collectively form a powerful lobbying group intent on protecting the current sales-tax system. But more important than the question of who will be taken seriously is the big gap between rhetoric and proposal on this issue.

Villaraigosa’s commission made big noises about the creation of “a set of state, regional and local smart-growth policies to guide the development and conservation of the state.” But the speaker’s modest proposal won’t do much to alter the status quo. A different commission, backed by Hertzberg, complained about land-use planning programs created by the current fiscal system but did little to promote a revision of policies.

Hertzberg’s Commission on Local Governance for the 21st Century, chaired by San Diego Mayor Susan Golding, was a byproduct of state legislation to facilitate the San Fernando Valley’s secession from the City of Los Angeles. The commission published a long list of land-use sins committed by local governments, and commissioners, including elected officials and municipal-government experts, spoke out strongly and eloquently on the need to reduce urban sprawl.

But the commission’s report contained few sweeping recommendations about how to reform the state-local fiscal relationship and combat sprawl. Instead, the commission called for a set of relatively small, though sound, revisions to the Cortese-Knox Act, the state law that covers how local government is organized.

To the extent that local fiscal problems and land-use concerns are being dealt with at all, they are handled from the bottom up, with Sacramento responding only upon the request of local officials. For example, the Legislature will be asked this year to adopt a package of bills to deal with the growing jobs-housing imbalance between the Bay Area and the Central Valley. The ideas, including a computer mapping system showing where job and housing centers are located, are good ones. But they’re not coming from Sacramento. They’re going to Sacramento from local officials.

One of the main reasons for the absence of Sacramento leadership on this issue is that there is no natural constituency in the capital for reform. Only a few wonks and lobbyists in Sacramento understand the state-local relationship, and the interest groups, including cities and counties, invariably believe that any change will be bad for them.

If Gov. Gray Davis took a strong position on the state-local relationship, the Capitol could be galvanized on fiscal and land-use issues. But don’t count on it. True to his style, Davis has criticized others, especially local governments, and paid lip service to seemingly good ideas, such as restoring lost property taxes to cities and counties. But he hasn’t come forward with any bold plan on how to solve the problems.

It’s not that the ideas aren’t there. Policy wonks in Sacramento have been kicking around good ideas for years, including a far-reaching proposal, known as “Making Government Make Sense,” to reshuffle state and local revenues and responsibilities so that services are paid for with tax revenues raised at the same level at which the services are provided.

But politicians don’t see the political advantage in carrying a big stick. So, as with Proposition 13, nothing will be done until special-interest groups, maybe even local governments, come up with an atomic-bomb ballot initiative that will leave even more wreckage in its wake. *