The State Blew It, but Cities May Pay

The botched job that the governor and the Legislature have made of the electrical supply situation in California will be a case study in ineptitude for many decades.

Gov. Gray Davis’ furious media spin effort apparently has kept his head above water in California, but in the rest of the country, polls show that the vast majority of Americans understand that the California electrical crisis was self-inflicted by Sacramento politicians.

Having burned through as yet untold billions of taxpayer dollars in a desperate attempt to rescind the law of supply and demand, the governor and his legislative allies have managed to compound the problem by obligating the state to pay above-market rates for future electrical energy.

This sad state of affairs might be comical if not for the negative impact it is having--and will continue to have for many years--on the California economy and taxpayer pocketbooks. For starters, in burning through the multibillion-dollar state surplus, the governor has radically reduced the prospects for improving the state. Those billions could have brought more schools, repaired decaying roads or even provided an economy-stimulating tax cut. Not now.

In compounding the error by obligating California taxpayers to pay above-market electricity rates for many years to come, the governor and his allies have further crippled California’s future. Every dime wasted paying above-market electricity rates in the future is a dime taken away from needed water, sewerage, road and educational infrastructure expenditure.

It can be reliably predicted that Sacramento politicians will go all out to avoid responsibility for their ineptitude and, with equal fervor, force someone else to take the heat from irate citizens. In order to pay, the governor and his legislative allies either must cut other spending, raise taxes or find some way to get money from local governments.

Cutting other spending would raise squeals of protest from the bureaucratic constituencies that form the core of the California Democratic Party.

Raising taxes in the teeth of a slowing economy is probably too much for even the Democratic leadership in the Legislature right now. Although it is the reflex solution for many, raising taxes just might spark a political backlash. Most legislators may bemoan Proposition 13, but they still remember that an overly greedy state government was its proximate cause.

Unfortunately, it is all too likely that Davis, a Democrat, will try to emulate his predecessor, Republican Pete Wilson, and stick it to local governments.

Of course, this presents some problems. Wilson and company raked billions away from cities and counties when they put the screws to local governments throughout California. There may be limits to how much more the state can get from local governments.

Utility user taxes are one area that could raise substantial revenue. As of fiscal year 1997-98, most cities in Orange County did not impose a utility user tax. The cities that did reaped significant revenue from these taxes. Seal Beach, for example, raised almost $4 million. Santa Ana and Huntington Beach garnered even more revenue--$20.3 million and $13.9 million, respectively.

The per-capita revenue from these taxes ranged from $19.31 in Irvine to a high of $148.48 in Seal Beach. Los Alamitos received $120.54 per capita, followed by Huntington Beach at $72.27, La Habra at $70.93 and Santa Ana at $65.36.

La Palma, Westminster, Stanton, Placentia and Buena Park were the other cities imposing utility user taxes in fiscal year 1997-98.

Clearly, utility user taxes could be an additional source of governmental revenue in Orange County. The Legislature, however, probably would not care to face the political fallout from raising utility user taxes directly.

Instead, they could raise local utility user taxes indirectly merely by taking more money from other municipal revenue sources. By doing this, the Legislature could force city councils to cut services or raise taxes. This, in essence, was the tactic Wilson and the Legislature used during the recession of the early 1990s.

The governor and Legislature could even bribe local governments into raising local utility user taxes. Cities that vigorously raised utility user taxes might suffer less state confiscation of other revenues, for example.

In any case, Orange County cities had better batten down the hatches. This time around it is rumored that local governments, long the Legislature’s fiscal punching bag, are starting to organize to protect their interests.

It will be interesting for Orange County citizens to see which side of this issue the normally flaccid Orange County legislative delegation is on. Do they work for their constituents or for John Burton, the state senator from San Francisco?