Speaker's Commission
State Seal

Recommendations of the Commission (February 23, 2000)

Guiding Concepts

  1. The local finance system should facilitate balanced state, regional and local conservation and development policies as well as finance local and regional services.
  2. In order to avoid dependence on one revenue source, local governments should derive their revenues from a diversity of sources, including property tax, sales tax and general-purpose state subventions.
  3. The finance base for local and regional services should be a constitutionally protected, stable, and reliable and be sufficient to assure basic services.
  4. Increase the transparency of state and local government.

I. A Program for Fiscal Reform in California

    Goal: Revise the current fiscal incentives in local land use decisions and increase the amount of discretionary revenue available for community and countywide services.

1. Swap a portion of the locally levied sales tax for an equivalent amount of the property tax

    Objective: Neutralize the effects of the local sales tax on local land use decisions by reducing the reliance of local government on the sales tax and increasing its reliance on the property tax in order to create an increased fiscal incentive for balanced land use decision-making.

    Proposal: Within each county, the county and each city would swap a portion of their locally levied sales tax with the State for an equal amount of the property tax. The locally levied 1% sales tax rate would be reduced to .5% and the State rate would be raised by .5%. An equal amount of property tax would be shifted from K-14 entities (sources of these funds could come from ERAF, K-12 districts, community colleges, superintendents of schools, and/or county boards of education). The State, using the new revenue from the .5% of the sales tax, would backfill educational programs through the State aid system.

    Implementation: Hold each city and county harmless for the loss of the sales tax by substituting an equivalent amount of property tax. The property tax allocation for each city and county would work as follows:

    • The 1% property tax is currently levied countywide and allocated to agencies within the county by statute. Under this proposal the county and each city would be allocated the amount of property tax it received in the prior year, augmented with the amount of the sales tax that it lost in the swap. This action would have the effect of changing each city and county's share of the property tax since the relative shares of the property tax among the jurisdictions receiving the tax would change. The city or county share would go up and the educational agencies' share would go down.

    • Each year thereafter, the city and the county would receive the amount they received in the prior year (the adjustment for the sales tax swap is now in the base property tax) plus a share of the property tax that is attributable to the growth in assessed value within their jurisdiction. The pro rata shares of the property tax of each jurisdiction would determine the share of the growth. This is consistent with existing law. For example, if a city received 15% of the property tax it would receive 15% of the growth.

    • The property tax would be shifted from educational agencies. The reduction in property tax going to these districts would be replaced with an equivalent amount in State aid. Within each county the K-12 school share of the property tax would be allocated on a per student basis. The "basic aid" districts (those school districts that receive a minor amount of State aid and receive most of their funding from the property tax) would be held harmless for the change from a situs-based property tax to one where the schools' share of the countywide property tax is distributed on a per student basis to school districts within the county.

2. Settlement for the 1992-93 and 1993-94 Property tax shift

    Objective: Increase the amount of discretionary revenue for countywide and other local government services.

    Proposal: Return $1 billion of property taxes to counties, cities and special districts from the Education Revenue Augmentation Fund (ERAF) in each county or other State sources over time in annual installments of not less than $100 million, provided that the growth in any year of per capita non-proposition 98 general fund revenue exceeds the statewide consumer price index for the prior year.

3. Place the existing Vehicle License Fee subvention in the State Constitution

    Objective: Insure the continuance of the Vehicle License Fee per capita subvention after the VLF has been reduced.

    Proposal: Existing law requires the State to replace the reduced fee revenue with other State resources. Create a Constitutional obligation on the part of the State to maintain the per capita subvention and replace the revenue lost due to the reduction in the Vehicle License Fee.

4. Place the existing .5 per cent countywide sales tax authority in the State Constitution.

    Objective: Provide for a constitutionally protected revenue source for countywide and community services.

    Proposal: The existing .5% "transactions and use" taxing authority would be moved into the Constitution so that voters, upon their approval of this proposal, would have the assurance that the resultant revenues could not be used to supplant State spending. The allocation of those revenues would be based on local agreement.

II. A Program for Increased Governmental Accountability

    Goal: Increase the transparency of government by introducing performance measures into State and local government decision-making and by clarifying the state/county relationship so that roles and responsibilities are clearly understood.

1. Require the development of performance measures for State and local services

    Objective: Ensure that citizens are able to measure in a systematic way the efficiency and results (the "outcomes") of the efforts of State and local agencies to provide services.

    Proposal: Require all local agencies (including Redevelopment agencies) to develop (via a public process) performance measures for their community and a system for the community to evaluate their performance based on outcomes. The State should establish a similar system of performance measures to assist in the annual budget process as well as part of a continuing policy evaluation process.

2. Establish a new model for the State/county relationship

    Objective: Clearly define the responsibilities of the State and the counties when the county is acting as an agent of the State.

    Proposal: Adopt a "Compact Model" for the State/county relationship. A common, bilaterally written compact that would spell out roles, responsibilities, duties, work programs, finances, community outcomes, performance indicators, and evaluation systems would govern each State/county partnership service program within the confines of existing statutory obligations. For each State program where the county acts as an agent of the State a compact would cover the program.

3. Revise the county budget requirements in order for the public to distinguish the various roles of county government

    Objective: Within county budgets, distinguish countywide services from "urban service" responsibilities undertaken for unincorporated areas of the county.

    Proposal: Encourage counties to implement county budgets that, to the extent feasible, distinguish the role of the county in providing countywide services from its "urban service" responsibilities for unincorporated areas of the county.

4. Property tax allocation reporting requirement

    Objective: Increase public understanding of how the property tax finances municipal services.

    Proposal: Require the county auditor or appropriate State agency to report annually the amount and relative share of the property tax revenues for each agency in a manner that facilitates understanding and comparability among cities and counties about how the property tax funds municipal services. It should indicate the rates levied by special districts providing services commonly provided by a full service city such as parks and recreation services, library services, fire services in a way which compares them to those levied by a full service city, and should portray allocations for redevelopment, county, and educational jurisdictions.

III. Issues of Continuing Concern for the Legislature and the Governor

    Goal: Study, develop and implement systems, through State and federal executive action, for assuring that equity objectives, as well as environmental and economic objectives, are supported by proposals concerning State and local government finance and resource distribution. Public finance measures should reduce, rather than exacerbate, the gap between affluent and low-income Californians. Transportation finance should also be studied to identify methods to improve the stability of funding, including the current gas tax system.

1. Equity Impact Assessment

    Objective: Ensure that reforms in the State and local finance system deal with existing and future fiscal and social equity issues in the gathering of public revenues and the distribution of resources throughout the regions in the state.

    Proposal: In order for reforms in the local finance system to improve the imbalance in the financing of local services the equity issues must be addressed. Fiscal reforms should:

    • Create incentives for the development and maintenance of communities and regions to improve living standards, economic vitality, environmental protection, and assessable, efficient and effective governance for all their residents and workers.

    • Allocate public resources according to community need and correct imbalances in funding of local governments with respect to cities and counties with inadequate funding and "low social health" and low tax bases.

    • Reduce the gap between the "haves" and the "have-nots" and avoid exacerbating the gaps between population sectors.

2. Equity implementation measures

    Objective: Understand the impacts on low-income communities of the recommendations of the Speaker's Commission, other reform recommendations, and other State policies that affect the distribution of public resources.

    Proposal: Provide an "Equity Impact Assessment" of proposals for State/ local finance reform.

3. Review the structure of transportation funding

    Objective: Understand the inability of the per gallon fuel tax system to finance future the states current and future transportation needs.

    Proposal: The legislature and the governor should undertake a study of the most efficient and reasonable way in which to stabilize the revenue stream from the gas tax at its present rate.

IV. Regional Growth and Development Policy

    Goal: Initiate a joint legislative and executive branch process for the development of State, regional and local growth and development policies and a governance structure that connects fiscal powers with roles and responsibilities. This process must recognize the importance of regions as economic forces and that preservation of environmental resources within those regions is essential to the well-being of the state as well as insuring that equity considerations are a central part of this process.

1. Develop a set of State, regional and local "regional growth" polices to guide the development and conservation of the state.

    Objective: Revise the local planning and land use decision-making process by instituting regional and State growth and development policies that embrace the three factors of sustainable development - Economy, Environment and Equity.

    Proposal: Adopt in State law a regional growth policy as the environmentally preferred alternative for local land use decisions. At a minimum, a statewide regional growth policy objective should be sustainable development characterized by the interrelationship of economic, environmental and equity issues. State development policy would include the following:

    1. Maintain a healthy economy by promoting higher value job opportunities for people in each region.

    2. Accommodate housing, in both quantity and affordability, within each region or sub region to match population and job growth.

    3. Encourage efficient land use (which includes promoting strategies such as higher densities around transit hubs to establish transit villages, mixed-income and mixed-use projects, walkable 24-hour communities, recycling of "brownfields" and "grayfields," and "smart" conversion of closed military bases.

    4. Require local general plans, the development of which should include public involvement down to the neighborhood level, be linked to regional plans.

    5. Protect vital and valuable ecosystems and natural habitats.

    6. Conserve natural resources and preserve environmental assets.

    7. Protect and conserve prime and unique farmlands.

    8. Invest in infrastructure to ensure mobility and quality of life, especially in existing urban areas.

    9. Reduce dependency on single-occupant-vehicle trips.

    10. Reduce poverty and promote greater equity.

2. Initiate a study on the feasibility of developing resources and governance structures to deal with regional problems on a regional basis.

    The Commission believes that economic competition and demands for high quality of life require a regional approach, but lack of incentives and governance structures thwarts efforts at regional cooperation. Concepts discussed by the Commission which could address these issue were:

    • To reconfigure counties and delivery of regional services along regional lines

    • To establish a regional pool of resources that is allocated to local jurisdictions based on a formula that recognizes specific policy objectives. This approach envisions the state establishing a policy goal that each region is to strive to create (a) higher value job opportunities and (b) housing that accommodates all income levels, and that the jobs and housing be in proximity to each other. In achieving this policy goal, regions would be guided by "regional growth" principles. Regions would be required to develop performance standards and strategies to achieve the policy goal, design measures to track progress, and report progress annually to the residents of the region.


    i) Regional strategies developed with input from all potentially impacted sectors including social equity and environment.

    ii) Pool funded from taxes raised within the region.

    iii) State subvention funds to supplement the pool to achieve state policy goals.

    iv) Regional governance structure clearly accountable to the voters of the region.

    v) Allocation rules clearly understandable the voters.

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Speaker's Commission on State/Local Government Finance
in collaboration with the
Metropolitan Forum Project
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Los Angeles, CA 90017
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