Two Interesting Public Finance Propositions

The passage of Proposition 39 sets into motion an interesting series of changes in the political calculus of state and local government finance in California. Proposition 39, which reduces the threshold necessary to pass local school bond issues from two-thirds to 55% of the votes cast, almost certainly will lead to more bonded debt and higher taxes to service that debt. This may make it more difficult for cities, counties and special districts to float bonds or raise taxes.

The physical plants of some, but by no means all, school districts will be improved. In some districts, voters still may reject bond issues, even at the lower 55% voter approval threshold. Other districts will not accomplish much in the way of improving existing schools or building new ones even if local voters approve school bond issues.

This wide diversity in district resources and managerial competency almost certainly will lead to uneven results from Proposition 39. In turn, the Legislature and state educational bureaucracy, if not the courts, may delve even deeper into school finances.

This is ironic in light of advocates of the measure touting the return of financial control to local school districts as one of the proposition’s key attributes. As any school district superintendent can testify, the Legislature and the state Department of Education already have a heavy hand in local school district finances and operations.

School districts and, more important, the politically powerful teachers union, probably will not give up readily their newly acquired and exclusive franchise to impose debt with only 55% of the vote. If local voters pony up more of the cost for building and repairing schools, the Legislature and the governor will be able to spend the gushing state surplus elsewhere.

Expect the teachers union to demand their cut, in no uncertain terms.

Proposition 39 should result in better classroom facilities around the state. But if too many schoolchildren still can’t read or write, parents in lousy school districts aren’t going to accept many more excuses. The demand to break up the LAUSD could grow, and legislators looking for full-time offices might use that demand as a pretext to start splitting up Los Angeles County.

That brings us to the second factor in the changing political calculus of state and local government finance in California, Proposition 33. Proposition 33, which would have allowed state legislators to feather their own retirement nests by joining the California Public Employees Retirement System (often referred to as CalPERS, or just PERS), was resoundingly defeated.

With term limits firmly in place (courtesy of Proposition 140 passed earlier) and the fact that taxpayers are disinclined to support them in perpetuity (Proposition 33), many state legislators are going to be looking elsewhere for full-time, well-paying elected positions.

Congressional reapportionment will provide only three or four new seats, and most elected local government positions are part-time gigs with only modest compensation. County supervisor posts in the larger counties are, however, full-time paid positions with lavish benefits, including retirement coverage. Of course, there are only so many large counties and full-time supervisorial seats. That could change.

The desire of many San Fernando Valley residents to secede from the city of Los Angeles is widely understood, and there are incipient secession movements in other areas of the city. But any municipal breakup in Los Angeles requires citywide majority approval at the ballot box, which would be difficult to attain.

Splitting up Los Angeles County, on the other hand, may be a very different political equation.

San Fernando County (Burbank, Glendale, the San Fernando Valley and the Antelope Valley), San Gabriel County (Pasadena to Claremont and south to the Whittier Narrows) and San Pedro County (from El Segundo across the South Bay to meet up with San Gabriel County at the Whittier Narrows) might sound pretty good to a number of termed-out state legislators.

Keep in mind that counties are creations of the state, and that the Legislature has considerable power when it comes to creating or splitting counties. For example, the Legislature split Orange County off from Los Angeles County over 100 years ago.

Legislators going to county supervisor jobs probably would be much more sympathetic to the plight of county and city governments that have had their local property tax revenue diverted to school districts by the governor and the Legislature.

Also, legislators going to supervisor jobs in the new counties would be prudent to secure a fair and equitable revenue stream from the state for all counties. This could have a major and positive impact on local government finance in Orange County, which like Los Angeles County suffers from the grossly unbalanced distribution of state subventions to California counties.

Proposition 39 is definitely going to change the mixture of local government and school district finance in California. Proposition 33 could lead to even greater changes in local government finances, which might prove to be particularly beneficial in Orange County.