Dan Walters: Locals tired of wearing 'kick me' signs in state budget travails

August 01, 2003

Sacramento Bee

By Dan Walters -- Bee Columnist

Published 2:15 a.m. PDT Friday, August 1, 2003

When California voters enacted Proposition 13 in 1978, slashing property taxes by billions of dollars, they probably didn't intend to convert local governments into stepchildren of the state government.

Nevertheless, when the Legislature extended state financial aid to keep thousands of local governmental agencies in business, it centralized authority for major budgetary decision making in Sacramento. And the strings on state aid became very apparent in the early 1990s when California was buffeted by a severe recession and the state lost billions of dollars in sales and income tax revenues.


In ways big and small, Gov. Pete Wilson and state legislators imposed some of their problems on local governments -- the most prominent being a device called the Educational Revenue Augmentation Fund.

The state shifted several billion dollars a year in local government property taxes to schools, then reduced state aid to schools by the same amount. Eventually, some ERAF money returned to cities and counties by means of a special sales tax, but it was restricted to "public safety" spending. Local officials complained loudly about the raids, but were politically powerless to stop them. Although a powerful "Education Coalition" had been created to protect and enhance state support of public schools, local governments had not muscled up for the new Sacramento-based political reality created by Proposition 13.

Local governments, by their inaction, had made themselves ripe for the plucking in the zero-sum politics of state budgeting. Even when state revenues improved, Wilson, successor Gray Davis and the Legislature kept ERAF in place and gave the locals just crumbs, relatively speaking, as they lavished new money on schools and other politically potent interest groups, such as advocates of expanded health care for the poor and personal and business tax cuts.

Still, the locals lagged in their political organization, and when the state began experiencing another round of revenue shortfalls in 2001, Sacramento politicians still saw "kick me" signs on the backs of city and county officials.

One of the tax cuts enacted in the late 1990s had been a multibillion-dollar lowering of the "vehicle license fee," a property tax on cars whose proceeds went to local governments. The state agreed to provide locals with "backfill" funds to offset the lower car taxes, but this year, as budgetary problems reached immense proportions, Davis proposed to end the backfill and make local officials eat the loss.

Davis later switched and restored the VLF to its former level. But the final budget still contains a significant hit on local governments, around a billion dollars. Most of the loss comes from having to absorb a three-month lag in reinstating the car tax and a shift of city redevelopment funds into the state treasury.

There's also a "tax swap" scheme under which locals lose $2 billion-plus a year in sales taxes, but are supposed to receive offsetting shares of property taxes -- a kind of ERAF in reverse. It leaves locals vulnerable to even more depredation if the state's budget problems continue, as they are likely to do.

The tortured history of state-local relations over the past quarter century has created a climate of total distrust among city and county officials that transcends the dollars. They are unable, they complain, to plan effectively for vital local services such as police and fire protection, libraries and parks because they can never be certain that Sacramento won't raid them.

A few days before the final budget vote, the League of California Cities decided to actively explore a 2004 ballot measure that, if enacted, would "make it much harder for the state to dip down," in the words of a spokeswoman. "We want to protect the revenues we have right now," she said.

County officials, whose financial ties to the state are more intimate, are reluctant to join what amounts to a political declaration of independence. And it's not certain that the local public employee unions will put up the millions of dollars that such a ballot measure campaign would require.

Nevertheless, city officials are trying to take those "kick me" signs off their backs. And if they succeed, balancing future state budgets on those backs will become much more difficult.