Umbilical Cord That Bleeds Instead of Nourishing

Usually it takes a governor of California six months or even a year to break financial promises to local governments. But Arnold Schwarzenegger, by his own account, is on a fast track.

He’s been in office just two months, and already he’s done it twice. The day he was inaugurated, he took $4 billion away from local government by cutting the car tax, money he has promised to restore through an emergency-payment scheme that has angered legislative leaders. And this month, he proposed taking about $1.3 billion in property taxes -- a revenue source controlled by local governments in most states -- to help balance his 2004-05 budget.

As a commentator, I understand why Schwarzenegger keeps trying to take money away from local governments. But as an elected city official, I’m mad. Every time there’s a financial crisis in Sacramento, we feel the squeeze here in Ventura. The streets don’t get paved. The libraries can’t stay open. We fall further behind in our struggle to pay our police officers and firefighters enough money so that they can live in the community they serve.

However badly we get whacked, counties get hit twice as hard. Of the $1.3-billion cut in Schwarzenegger’s budget proposal, counties would suffer $1 billion of the damage. That reduction would make it more difficult for local officials to keep jails open and deliver the health and welfare services that function as the principal safety net in most communities.

The truth is, the whole pattern is beginning to feel a little old. Former Republican Gov. Pete Wilson first bludgeoned local governments more than a decade ago, when he balanced the budget by taking one-quarter of the property taxes away from local governments -- a move that has cost cities, counties and special districts tens of billions of dollars.

Wilson characterized the shift as temporary, but he never returned the funds. Democratic former Gov. Gray Davis promised to restore the property taxes to their pre-Wilson levels, but he never did, in spite of huge budget surpluses.

Now Schwarzenegger is following the same path.

My colleagues around the state are as unhappy as I am, and every day I hear at least one of them demand that Schwarzenegger return things to the way they used go be. Give us our property tax back! Give us our car tax back! Repeal Proposition 13 and give us our taxation power back!

I sympathize with their demands. But what I’m most mad about is that these angry declamations call on somebody in Sacramento to do something to solve our problem -- which is pretty much how we got into this mess in the first place.

Local governments in California feel financially whipsawed because they are almost completely tethered to Sacramento for their revenue. Proposition 13 keeps property taxes low, but it also gives the power to distribute those funds to the governor and the Legislature. Because school districts are funded by a combination of state and federal dollars and local property taxes, Sacramento is always tempted to manipulate the property-tax-allocation formula to take funds away from local governments and give them to school districts. It’s a way to reduce the education hit on the state’s general fund.

The recent populist movement to cut the car tax chained the locals to Sacramento even more. Wilson’s 1998 deal to reduce the vehicle license fee by two-thirds would have hit cities and counties the hardest, because traditionally they received all the car-tax funds on a per-capita basis. But to make the cut more politically palatable, Wilson agreed that the state general fund would hold the cities, counties and special districts financially harmless. Presto -- another lifeline to the state general fund.

However you slice it, local governments have become highly dependent on the state to provide basic services that were traditionally paid for by local taxes. And it’s inevitable that, in a fiscal downturn, the state will try to balance its budget, in part, by cutting off the lifeline.

Is it any wonder that local officials in California don’t trust the state? Their distrust is so deep that it is shocking to elected officials from other states -- all of whom whine about their governors but most of whom believe that their states will keep their promises. Everybody recognizes that the state-local fiscal situation in California is broken and needs fixing, and any number of good ideas have been put forward in Sacramento over the last few years. But virtually all the ideas have failed for the simple reason that locals do not trust the state to stick to its word.

Hammering Schwarzenegger to return the car-tax or the property-tax monies may be necessary in this budget cycle. But it won’t break the cycle of dependence on Sacramento. That requires more radical change.

California’s cities and counties are peddling an initiative, currently scheduled for the November ballot, that would lock a certain level of funding for local governments into the state Constitution, just as Proposition 98 guarantees funding for public education. As a commentator, I think ballot-box budgeting is a terrible idea. As an elected official, I’ll stump for this initiative because I don’t see what the alternatives are. How are you supposed to run a city government when you quite literally can’t forecast how much money the state is going to send you next week?

True reform would probably require something more sweeping. A repeal of Proposition 13 is politically impossible, and returning to the 1930s system of local governments setting and collecting sales taxes would probably lead to chaos in a modern society. But these concepts contain one populist idea that we’ve lost in California: restoring a connection between the amount of money that a city or county raises in taxes and the amount it spends on public programs.

Long ago, this connection was strong. A city council would examine the cost of programs and services, then face the public in an open forum to decide whether to raise taxes to cover that cost. (County governments and school boards did the same thing.) But now, with the levers pulled mostly in Sacramento, the connection has been severed. We never debate whether to raise or lower taxes based on service levels. Instead, Sacramento sends us some money, and once we figure out how much it is, we decide what we can afford to provide our taxpayers.

In an ideal world, I’d blow up the system. I’d require the state to provide base funding for local governments so no city is left behind. Beyond that, I’d allow local officials and their voters to decide how much they want to tax themselves to provide services. That’s the way it should be.

But as an elected official, I don’t operate in an ideal world. Instead, I operate in one where money comes in envelopes from Sacramento. And as long as that’s the case, I’ll squawk just as loud as all the other pressure groups and demand that the envelope for my city be as fat as possible.